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A natural level of capital flows

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  • Burger, John D.
  • Warnock, Francis E.
  • Warnock, Veronica Cacdac

Abstract

International portfolio flows converge in the medium run to a country-specific, supply-side estimate of their natural level. Our estimate of the natural level of capital flows, KF*, has impressive out-of-sample empirical features, greatly improves our ability to model notoriously volatile capital flows and performs well against out-of-sample and in-sample filtering techniques. Further, the gap between actual inflows and KF* helps predict sudden stop episodes, equity returns, and capital flows during the two largest shocks of the past few decades: the global financial crisis and the Covid-19 shock.

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  • Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2022. "A natural level of capital flows," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 1-16.
    • Handle: RePEc:eee:moneco:v:130:y:2022:i:c:p:1-16
    DOI: 10.1016/j.jmoneco.2022.05.009
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    More about this item

    Keywords

    Capital flows; Sudden stops; Equity returns;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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