Growth Shocks and Portfolio Flows

Eylem Ersal Kiziler

Working Papers from UW-Whitewater, Department of Economics

Abstract: This paper studies the cyclicality of portfolio flows under the presence of productivity growth rate shocks. Productivity growth rate shocks successfully replicate countercyclical net equity outflows and procyclical bond inflows for advanced countries, which couldn't be captured in a model with only level shocks. Similarly, for an emerging market economy, the model with growth rate shocks generates countercyclical net equity inflows and procyclical bond inflows in accordance with data. Following a growth rate shock, home agents experience a decrease both in equity inflows and outflows on impact. Inflows decrease due to sales of home equity to realize capital gains and outflows decrease due to initial dissaving to finance increases in consumption and investment. Equity inflows increase later, as home dividends rise. Equity outflows pick up also as wealthier home agents increase purchases of foreign assets to hedge against home productivity shocks.

Keywords: Portfolio Flows; Productivity Growth Rate Shocks (search for similar items in EconPapers)
JEL-codes: F36 F41 G11 G15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-05
New Economics Papers: this item is included in nep-dge and nep-opm
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