BIS paper pins down causal impact of capital flows

The Bank for International Settlements, Basel
The Bank for International Settlements, Basel
Photo: Ulrich Roth

A study published by the Bank for International Settlements breaks new ground by using confidential data on bank lending to isolate the causal effects of cross-border capital flows.

The working paper, by Iñaki Aldasoro, Paula Beltrán, Federico Grinberg and Tommaso Mancini-Griffoli, “disentangles” the causality by using BIS locational banking statistics to construct “granular” instrumental variables. The authors note capital flows are often driven by changes in risk sentiment, which is

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