A natural level of capital flows

John Burger, Francis E. Warnock and Veronica Cacdac Warnock

Journal of Monetary Economics, 2022, vol. 130, issue C, 1-16

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.

Keywords: Capital flows; Sudden stops; Equity returns (search for similar items in EconPapers)
JEL-codes: F3 G11 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Natural Level of Capital Flows (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:130:y:2022:i:c:p:1-16

DOI: 10.1016/j.jmoneco.2022.05.009

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