TY  - JOUR
AU  - Tille,Cédric
AU  - Wincoop,Eric van
TI  - International Capital Flows under Dispersed Information: Theory and Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14390
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14390
L1  - http://www.nber.org/papers/w14390.pdf
N1  - Author contact info:
Cédric Tille
Graduate Institute for International
and Development Studies
Department of Economics
Pavillon Rigot, Avenue de la Paix 11 A
1202 Geneve, Switzerland
Tel: 41229085928
Fax: 41227333049
E-Mail: cedric.tille@graduateinstitute.ch

Eric van Wincoop
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville, VA  22904-4182
Tel: 434/924-3997
Fax: 434/982-2904
E-Mail: vanwincoop@virginia.edu
AB  - We develop a new theory of international capital flows based on dispersed information across individual investors. There is extensive evidence of information heterogeneity within and across countries, which has proven critical to understanding asset price behavior. We introduce information dispersion into an open economy dynamic general equilibrium portfolio choice model, and emphasize two implications for capital flows that are specific to the presence of dispersed information. First, gross and net capital flows become partially disconnected from publicly observed fundamentals. Second, capital flows (particularly gross flows) contain information about future fundamentals, even after controlling for current fundamentals. We find that these implications are quantitatively significant and consistent with data for industrialized countries.
ER  -