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Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets

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  • Mody, Ashoka
  • Taylor, Mark P
  • Kim, Jung Yeon

Abstract

In this paper, we provide capital flow forecasts to 32 developing countries using a vector error correction framework based on underlying domestic (pull) fundamentals and international (push) factors. In general, pull factors have a heavier weight in determining these capital flows. However, short-term dynamics of capital flows can be significantly influenced by external developments. Simulations under various economic scenarios show that while financial variables (such as the US interest rate and high-yield spread) are important, real US activity may be even more potent in influencing capital flow movements. Copyright @ 2001 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Mody, Ashoka & Taylor, Mark P & Kim, Jung Yeon, 2001. "Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 201-216, July.
    • Handle: RePEc:ijf:ijfiec:v:6:y:2001:i:3:p:201-16
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