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Modelling fundamentals for forecasting capital flows to emerging markets
Author(s) -
Mody Ashoka,
Taylor Mark P.,
Kim Jung Yeon
Publication year - 2001
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.159
Subject(s) - capital flows , economics , yield (engineering) , capital (architecture) , econometrics , emerging markets , monetary economics , macroeconomics , financial economics , microeconomics , profit (economics) , history , materials science , archaeology , metallurgy
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 John Wiley & Sons, Ltd.