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A Decomposition of International Capital Flows

Author

Listed:
  • Gao Meng

    (University of Virginia)

  • Eric Wincoop

    (University of Virginia
    NBER)

Abstract

We propose a method to break down capital flows into portfolio growth and portfolio reallocation components and apply it to data on US equity and bond outflows. The decomposition is part of an integrated approach that decomposes purchases of any asset into portfolio growth and reallocation components. US equity and bond outflows depend not just on portfolio growth and the reallocation between US and foreign equity and bonds, but also on reallocation decisions higher up on the decision tree. This includes reallocation between portfolio and non-portfolio assets and between equity and bonds. We also consider the decomposition of US equity and bond outflows to individual foreign countries. The data shed light on the importance of the various components in accounting for capital flows over both the short and long run.

Suggested Citation

  • Gao Meng & Eric Wincoop, 2020. "A Decomposition of International Capital Flows," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 362-389, June.
    • Handle: RePEc:pal:imfecr:v:68:y:2020:i:2:d:10.1057_s41308-019-00094-0
    DOI: 10.1057/s41308-019-00094-0
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    1. Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2022. "A natural level of capital flows," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 1-16.

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