This paper argues that the 40-year-old Feldstein-Horioka “puzzle” (i.e., that in a regression of the domestic investment rate on the domestic saving rate, the estimated coefficient is significantly larger than what would be expected in a world characterized by high capital mobility) should...

The empirical literature has long established that U.S. interest rates are an important driver of international portfolio flows, with lower rates “pushing” capital to emerging markets. On the basis of this literature, it is often argued that the Federal Reserve's imminent policy tightening...

We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such...

Foreign investors' changing appetite for risk-taking have been shown to be a key determinant of the global financial cycle. Such fluctuations in risk sentiment also correlate with the dynamics of UIP premia, capital flows, and exchange rates. To understand how these risk sentiment changes...

This paper argues that the 40-year-old Feldstein-Horioka "puzzle" (i.e., that in a regression of the domestic investment rate on the domestic saving rate, the estimated coefficient is significantly larger than what would be expected in a world characterized by high capital mobility) should have...

Feldstein and Horioka (1980) argued that the correlation of saving and investment in a cross-section of countries may provide a test of global capital mobility. This paper argues that neither the long-run nor the short-run correlation can serve as a reliable basis for such a test. The...

The composition of Japan's current account balance has changed over time, with an increasing income balance primarily reflecting a growing net foreign asset position and higher corporate saving. A comparison of Japan's income balance with peer countries highlights: (i) relatively high yields on...

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs). The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The...

This paper analyses the incidence and severity of sudden stops in euro area countries before and after the introduction of the ECB's asset purchase programmes. We define sudden stops as abrupt declines in private net financial inflows, i.e. total flows adjusted for EU and IMF loans and changes...

We examine empirically the reaction of global financial markets across 38 economies to the COVID-19 outbreak, with a special focus on the dynamics of capital flow across 14 emerging market economies. Using daily data over the period 4 January 2010 to 30 April 2020 and controlling for a host of...