Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets

Ashoka Mody, Mark Taylor and Jung Yeon Kim

International Journal of Finance & Economics, 2001, vol. 6, issue 3, 201-16

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.

Date: 2001
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