Benchmarking Portfolio Flows
- 90 Downloads
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.
- Ahmed, S., S. Curcuru, F. Warnock, and A. Zlate. 2018. Decomposing international portfolio flows. Mimeo.Google Scholar
- Bussière, Matthieu, Julia Schmidt and Natacha Valla. 2016. International financial flows in the new normal: Key patterns (and why we should care). CEPII Policy Brief No. 10.Google Scholar
- Calvo, Guillermo. 1998. Capital flows and capital-market crises: The simple economics of sudden stops. Journal of Applied Economics 1(1): 35–54.Google Scholar
- Cerutti, Eugenio, Stijn Claessens and Andrew Rose. 2017. How important is the global financial cycle? Evidence from capital flows. NBER WP 23699.Google Scholar
- Coeuré, Benoît. 2015. Paradigm lost: Rethinking international adjustments. Egon and Joan von Kashnitz Lecture, Clausen Center for International Business and Policy, Berkeley, 21 November 2015.Google Scholar
- International Monetary Fund. 2016. Understanding the slowdown in capital flows to emerging markets, 63–99. Washington, DC: World Economic Outlook.Google Scholar
- Lane, Philip, and Gian-Maria Milesi-Ferretti. 2017. International financial integration in the aftermath of the global financial crisis. IMF Working Paper WP/17/115.Google Scholar
- Leitch, Gordon, and J.Ernest Tanner. 1991. Economic forecast evaluation: Profits versus the conventional error measures. American Economic Review 81(3): 580–590.Google Scholar
- McCauley, Robert Neil, Agustín S. Bénétrix, Patrick McGuire and Goetz von Peter. 2017. Financial deglobalisation in banking? BIS Working Papers No. 650.Google Scholar
- McQuade, Peter, and Martin Schmitz. 2016. The great moderation in international capital flows: a global phenomenon? ECB Working Paper 1952.Google Scholar
- Pesaran, M.H., and A. Timmermann. 1992. A simple nonparametric test of predictive performance. Journal of Business & Economic Statistics 10(4): 461–465.Google Scholar
- Rey, Hélène. 2013. Dilemma not trilemma: The global financial cycle and monetary policy independence. In Proceedings of the 2013 Federal Reserve Bank of Kansas City Economic Symposium at Jackson Hole, pp. 285–333.Google Scholar