Jasna Tonovska – Faculty of Economics – Skopje, Ss. Cyril and Methodius University in Skopje, Republic of North Macedonia
Predrag Trpeski – Faculty of Economics – Skopje, Ss. Cyril and Methodius University in Skopje, Republic of North Macedonia
6th International Scientific Conference – EMAN 2022 – Economics and Management: How to Cope With Disrupted Times, Ljubljana, Slovenia, March 24, 2022, SELECTED PAPERS, published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; ISBN 978-86-80194-58-5, ISSN 2683-4510
Volatile capital flows pose serious risks to economic growth and financial stability. This paper investigates the link between economic performance and gross capital flows volatility in emerging market and developing economies (EMDE), and specifically, the extent to which macroprudential policy measures can diminish the detrimental effects of capital flows volatility on growth. For that purpose, we start by constructing volatility estimates for gross capital flows and their subcomponents on a sample of 37 EMDEs, following the methodology by Wang (2019). Then we perform panel regression over the period 2000-2018 incorporating the main variables of interest: economic growth, gross capital inflows volatility and macroprudential policy. The results show that the negative effect of gross capital inflows volatility on growth is significantly mitigated by the implementation of macroprudential policy measures. The results are robust against reverse causality and omitted variables bias.
Capital flows volatility; Macroprudential policy measures; Economic growth
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