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The Surge in Capital Flows: Analysis of 'Pull' and 'Push' Factors

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  • Agenor, Pierre-Richard

Abstract

This paper uses an intertemporal optimizing model of a small open economy facing imperfect world capital markets to assess the effects of "pull" and "push" factors on capital flows, asset accumulation, and the real exchange rate. A positive money demand shock raises consumption and holdings of foreign assets and appreciates the real exchange rate in the long run; it has an ambiguous effect on real money balances on impact. A positive productivity shock in the traded goods sector also leads to a long-run real appreciation (the Balassa-Samuelson effect), but the impact effect on relative prices is ambiguous. An increase in government spending on home goods leads to a real appreciation in the long run, but it has an ambiguous effect on the economy's stock of net foreign assets. The dynamic effects associated with a reduction in the world interest rate depend on the degree of intertemporal substitution in consumption and the initial asset position of private agents. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

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  • Agenor, Pierre-Richard, 1998. "The Surge in Capital Flows: Analysis of 'Pull' and 'Push' Factors," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 39-57, January.
    • Handle: RePEc:ijf:ijfiec:v:3:y:1998:i:1:p:39-57
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    Cited by:

    1. Ashoka Mody & Mark P. Taylor, 2013. "International capital crunches: the time-varying role of informational asymmetries," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2961-2973, July.
    2. Sarno, Lucio & Tsiakas, Ilias & Ulloa, Barbara, 2016. "What drives international portfolio flows?," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 53-72.
    3. Felices, Guillermo & Orskaug, Bjorn-Erik, 2008. "Estimating the determinants of capital flows to emerging market economies: a maximum likelihood disequilibrium approach," Bank of England working papers 354, Bank of England.
    4. Tomislav Globan, 2015. "Financial integration, push factors and volatility of capital flows: evidence from EU new member states," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 643-672, August.
    5. Charles van Marrewijk & Gus Garita, 2008. "Countries of a Feather flock together," Tinbergen Institute Discussion Papers 08-067/2, Tinbergen Institute, revised 19 Sep 2008.
    6. Stelios Bekiros & Amanda Dahlström & Gazi Salah Uddin & Oskar Ege & Ranadeva Jayasekera, 2020. "A tale of two shocks: The dynamics of international real estate markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 3-27, January.
    7. Anton Jevcak & Ralph Setzer & Massimo Suardi, 2010. "Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis," European Economy - Economic Papers 2008 - 2015 425, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Matthew Odedokun, 2003. "The 'Pull' and 'Push' Factors in North-South Private Capital Flows: Conceptual Issues and Empirical Estimates," WIDER Working Paper Series DP2003-43, World Institute for Development Economic Research (UNU-WIDER).

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