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Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?

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  • Julián A. Caballero

Abstract

This article asks whether capital inflows bonanzas increase the probability of banking crises and whether this occurs through a lending boom mechanism. Results indicate that bonanzas more than triple the odds of a crisis, raising its probability to 14% (from an unconditional probability of 4%). This effect exists in the absence of a lending boom and is found in both net and gross inflows bonanzas. This effect is driven by portfolio‐equity and debt flows. While the effect of debt is channelled through excessive lending, the effect of portfolio‐equity flows is present even in the absence of a lending boom.

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  • Julián A. Caballero, 2016. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?," Economic Journal, Royal Economic Society, vol. 126(591), pages 281-316, March.
    • Handle: RePEc:wly:econjl:v:126:y:2016:i:591:p:281-316
    DOI: 10.1111/ecoj.12172
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