Benchmarking Portfolio Flows
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To gauge the amount of portfolio inflows a country can expect to receive, we create a benchmark, a longer-term baseline path around which actual flows fluctuate, for 45 countries for the 2000 to 2017 period. For EMEs, there is a significant long-run relationship between actual portfolio flows and our benchmark, flows adjust strongly toward the benchmark, and our benchmark helps predict 1-year-ahead changes in inflows. For AEs, the benchmark performs well in directional forecasting exercises. In practical terms, when assessing large movements in portfolio flows it is informative to distinguish between movements toward the benchmark and movements away from the benchmark.
The authors thank the IMF’s Statistics Department for helping with bulk download access to the IMF’s CPIS dataset; McKinsey Global Institute for data on total financial assets by country; Gian Maria Milesi-Ferretti and Philip Lane for providing early access to their External Wealth of Nations update; and Luis Catao and Zsoka Koczan for providing the inflation component of the IMF (2016) real policy rate variable. We are also indebted to Paolo Pesenti for many helpful suggestions, and thank for helpful comments Fabio Ghironi and Linda Tesar (the editors) as well as Aart Kraay, Gian Maria Milesi-Ferretti, Alan Sutherland, Cedric Tille, two anonymous referees and participants at BIS-IDB Workshop “Cross-Border Flows in a New Economic Environment,” BNM-IMF-IMFER Conference “Globalization in the Aftermath of the Crisis,” Cass/ECB EMG Workshop on International Capital Flows, WEAI 93rd Annual Conference, and seminars at Reserve Bank of New Zealand, South Africa Reserve Bank, and University of St. Andrews.
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