Abstract
AbstractIn this paper, we provide capital flow forecasts to 32 developing countries using a vector error correction framework based on underlying domestic (pull) fundamentals and international (push) factors. In general, pull factors have a heavier weight in determining these capital flows. However, short‐term dynamics of capital flows can be significantly influenced by external developments. Simulations under various economic scenarios show that while financial variables (such as the US interest rate and high‐yield spread) are important, real US activity may be even more potent in influencing capital flow movements. Copyright © 2001 John Wiley & Sons, Ltd.
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