The Natural Level of Capital Flows
NBER Working Paper No. 26184
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.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
Document Object Identifier (DOI): 10.3386/w26184