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Capital Inflows and Booms in Assets Prices: Evidence From a Panel of Countries

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  • Eduardo Olaberría

Abstract

Policymakers and academics often associate large capital inflows with booms in asset prices. To date, however, methodical evidence of this association is still limited. This paper provides a systematic empirical analysis of the link between capital inflows and booms in asset prices. Using a panel of 40 countries from 1990 to 2010 and controlling for other macroeconomic factors, the paper finds that the link varies across capital inflow categories and across countries. In particular, emerging countries are more likely to experience booms in asset prices during periods of large capital inflows. In line with leading theories of financial crises the paper finds that financial development, the quality of institutions and the exchange rate regime can potentially influence the association between capital inflows and booms in asset prices. In contrast, this paper does not find evidence to support the view that capital controls help reduce this association.

Suggested Citation

  • Eduardo Olaberría, 2012. "Capital Inflows and Booms in Assets Prices: Evidence From a Panel of Countries," Working Papers Central Bank of Chile 675, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:675
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    Cited by:

    1. Arslan Razmi, 2021. "Capital inflows, sustained investment surges and the role of external economies of scale in a developing economy," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 365-387, May.
    2. Nasha Ananchotikul & Ms. Longmei Zhang, 2014. "Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets," IMF Working Papers 2014/156, International Monetary Fund.
    3. Hernández Vega Marco A., 2019. "How Relevant are Capital Flows for House Prices in Emerging Economies?," Working Papers 2019-19, Banco de México.
    4. Shahrier, Nur Ain & Anwer, Zaheer & Hassan, M. Kabir, 2023. "Do different streams of capital flows affect asset prices differently?," Global Finance Journal, Elsevier, vol. 57(C).
    5. Nasha Ananchotikul & Longmei Zhang, 2016. "Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets," PIER Discussion Papers 36., Puey Ungphakorn Institute for Economic Research, revised Jul 2016.
    6. Deniz Igan & Zhibo Tan, 2017. "Capital Inflows, Credit Growth, and Financial Systems," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(12), pages 2649-2671, December.
    7. Yang Zhou, 2022. "The Effects of Capital Controls on Housing Prices," Discussion Paper Series DP2022-29, Research Institute for Economics & Business Administration, Kobe University.

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