A theory of capital flow retrenchment

• 成果类型: Article
• 署名作者: Davis, J. Scott; van Wincoop, Eric
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Dallas; National Bureau of Economic Research; University of Virginia; National Bureau of Economic Research
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2024.103952
• 发表日期: 2024
• 关键词: capital flows; Retrenchment; Portfolio heterogeneity

摘要

During a downturn in the global financial cycle there is a simultaneous retrenchment in gross capital flows and a fall in risky asset prices. The global financial cycle is closely related to fluctuations in risk appetite. We develop a model that can simultaneously produce a fall in gross outflows, inflows, and asset prices following an increase in global risk aversion. There is heterogeneity across investors within a country in the willingness to hold risky assets and to hold foreign assets. The fall in the asset price after a rise in global risk aversion shifts the wealth distribution towards investors that are less willing to hold foreign assets. This leads a drop in gross flows. We calibrate the within country heterogeneity in the model to match heterogeneity observed in micro data of household portfolios. The retrenchment in the calibrated model is quantitatively similar to what we observe in the macro data.