Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207274 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7883
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
net capital flows
productivity
growth
portfolio diversification
JEL: 
F36
F43
Document Type: 
Working Paper
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