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Growth Shocks and Portfolio Flows

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  • Eylem Ersal Kiziler

    () (Department of Economics, University of Wisconsin - Whitewater)

Abstract

This paper studies the cyclicality of portfolio flows under the presence of productivity growth rate shocks. Productivity growth rate shocks successfully replicate countercyclical net equity outflows and procyclical bond inflows for advanced countries, which couldn't be captured in a model with only level shocks. Similarly, for an emerging market economy, the model with growth rate shocks generates countercyclical net equity inflows and procyclical bond inflows in accordance with data. Following a growth rate shock, home agents experience a decrease both in equity inflows and outflows on impact. Inflows decrease due to sales of home equity to realize capital gains and outflows decrease due to initial dissaving to finance increases in consumption and investment. Equity inflows increase later, as home dividends rise. Equity outflows pick up also as wealthier home agents increase purchases of foreign assets to hedge against home productivity shocks.

Suggested Citation

  • Eylem Ersal Kiziler, 2011. "Growth Shocks and Portfolio Flows," Working Papers 11-02, UW-Whitewater, Department of Economics.
  • Handle: RePEc:uww:wpaper:11-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio Flows; Productivity Growth Rate Shocks;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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