We propose a dynamic factor model with time-varying parameters and stochastic volatility to analyze the relationship between global factors and country-specific capital flow dynamics. Studying a global sample of 43 countries from 1994 until 2015, we show that global co-movement of macroeconomic, financial and capital flow variables can explain a major share of country-specific capital flow volatility and that the impact of these variables has become even more important since the 2008-2009 global financial crisis. Our results indicate that country-specific changes in capital flows are strongly affected by fluctuations in global financial cycles and-to some extent-by global real business cycles. There is some evidence that countries with higher foreign exchange reserves, flexible exchange rates, lower public indebtedness or more developed domestic stock markets may better shield themselves from the global financial cycle.

Summary: Central banks and financial supervisors approach ‘green finance’ mostly to preserve macroeconomic and financial stability according to their mandates. Obviously, climate change poses severe risks to households, firms and their financial intermediaries. These risks tend to be correlated and their scope goes beyond historical evidence, therefore their impact on the financial system is difficult to model. On the other hand, the planned decarbonization of the global economy creates enormous investment opportunities. Central banks and supervisors play a role in safeguarding the financial system’s smooth transformation from funding old, brown industries to funding a new green economy. The ‘Network for Greening the Financial System’ facilitates an exchange of experience and ideas among central banks and financial supervisors; we present some of their findings. While central banks can and should contribute to making the economy and the financial system more sustainable, they can only complement, but not substitute for, decisive political action by governments.

No abstract

No abstract

In line with the recent policy discussion on the use of macroprudential measures to respond to crossborder risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) -a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regimeswitching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control -besides domestic macroeconomic quantities -for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility.