NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Natural Level of Capital Flows

John D. Burger, Francis E. Warnock, Veronica Cacdac Warnock

NBER Working Paper No. 26184
Issued in August 2019, Revised in March 2020
NBER Program(s):International Finance and Macroeconomics

We put forward a theory-based time-varying supply-side measure of the natural level of capital flows, KF*, and construct it for 184 countries. Empirical features of KF*are impressive. For the subset of countries that have quarterly time series data of capital flows, we show that KF* is a level to which flows converge in the medium term; greatly improves our ability to model notoriously volatile capital flows; performs well against plausible filtering techniques; and helps predict 6-quarters ahead sudden stop episodes.

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Document Object Identifier (DOI): 10.3386/w26184

 
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