Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153085
Authors: 
De Santis, Roberto A.
Lührmann, Melanie
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 651
Abstract: 
In a panel covering a large number of countries from 1970 to 2003, we show that net portfolio flows play an important role in correcting external imbalances, since they are driven by common determinants represented by countries’ demographic profiles, the quality of institutions, monetary aggregates and initial net financial asset positions. Population ageing causes current account deficits, net equity inflows and net outflows in debt instruments. A higher money to GDP ratio – associated with lower interest rates – favours international investments in domestic stocks to the detriment of the less attractive domestic bonds. Additionally, current account balances are driven negatively by real GDP growth, losses in competitiveness and increases in the quality of the institutions; net equity flows are driven positively by the quality of the institutions and negatively by per capita income; while net flows in debt instruments are driven by long-term interest rate differentials and deviations from the UIP.
Subjects: 
Current accounts
net portfolio flows
panel regressions
JEL: 
F21
F32
F41
O16
Document Type: 
Working Paper

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