TY - JOUR AU - Kaminsky, Graciela L AU - Reinhart, Carmen M AU - Vegh, Carlos A TI - When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies JF - National Bureau of Economic Research Working Paper Series VL - No. 10780 PY - 2004 Y2 - September 2004 DO - 10.3386/w10780 UR - http://www.nber.org/papers/w10780 L1 - http://www.nber.org/papers/w10780.pdf N1 - Author contact info: Graciela L. Kaminsky Department of Economics George Washington University Washington, DC 20052 Tel: 202/994-6686 Fax: 202/994-6147 E-Mail: graciela@gwu.edu Carmen M. Reinhart Kennedy School of Government Harvard University 79 JFK Street Cambridge, MA 02138 Tel: 617 496 8643 E-Mail: carmen_reinhart@harvard.edu Carlos A. Vegh School of Advanced International Studies (SAIS) Johns Hopkins University 1717 Massachusetts Avenue, NW Washington, DC 20036 Tel: 202-663-7787 E-Mail: cvegh1@jhu.edu M1 - published as Graciela L. Kaminsky, Carmen M. Reinhart, Carlos A. Végh. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," in Mark Gertler and Kenneth Rogoff, editors, "NBER Macroeconomics Annual 2004, Volume 19" MIT Press (2005) AB - Based on a sample of 104 countries, we document four key stylized facts regarding the interaction between capital flows, fiscal policy, and monetary policy. First, net capital inflows are procyclical (i.e., external borrowing increases in good times and falls in bad times) in most OECD and developing countries. Second, fiscal policy is procyclical (i.e., government spending increases in good times and falls in bad times) for the majority of developing countries. Third, for emerging markets, monetary policy appears to be procyclical (i.e., policy rates are lowered in good times and raised in bad times). Fourth, in developing countries - and particularly for emerging markets - periods of capital inflows are associated with expansionary macroeconomic policies and periods of capital outflows with contractionary macroeconomic policies. In such countries, therefore, when it rains, it does indeed pour. ER -