| By: |
Constantin Bürgi;
Vida Bobic;
Min Wu;
Constantin Bürgi |
| Abstract: |
This paper presents a new explanation for the sustained pattern of
international net capital flows by modifying the standard consumption capital
asset pricing model (CCAPM) to create net capital flows beyond the initial
period. In addition to the well established link between asset returns and the
cyclical correlation between countries in standard CCAPM models, our model
links asset flows to the cyclical correlation. In particular, the model
predicts that a country that has a low correlation with the global cycle
should see net capital inflows. We provide strong empirical evidence in
support of this link and a 0.1 increase in the correlation leads to a 0.5-0.7
percentage point decrease in the net capital inflows as a % of GDP. |
| Keywords: |
net capital flows, productivity, growth, portfolio diversification |
| JEL: |
F36 F43 |
| Date: |
2019 |
| URL: |
http://d.repec.org/n?u=RePEc:ces:ceswps:_7883&r=all |