Volatility in International Capital Movements

Conventional wisdom is that some capital flows are inherently more volatile than others. However, our investigation of the statistical properties of these flows shows that no regular relationships exist to suggest that the particular composition of capital flows can help to explain the overall stability of the external accounts. Instead, capital seems to come and go in different forms with few reliable patterns. We show that while industrialised economies have experienced a trend rise in the volatility of individual components in the capital account, this variability is largely offsetting. Such offsetting relationships appear less prevalent in emerging economies.