International capital flows: Private versus public flows in developing and developed countries

Arbeitspapier

Empirically, net capital inflows are pro-cyclical in developed countries and countercyclical in developing countries. That said, private inflows are pro-cyclical and public inflows are counter-cyclical in both groups of countries. The dominance of private (public) inflows in developed (developing) countries drives the difference in total net inflows. We rationalize these patterns using a dynamic stochastic two-sector model of a small open economy facing borrowing constraints. Private agents over-borrow because of the pecuniary externality arising from constraints. The government saves abroad to reduce aggregate debt, making the economy resilient to adverse shocks. Differences in borrowing constraints and shock processes across countries explain the empirical patterns of capital inflows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2020-27

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Current Account Adjustment; Short-term Capital Movements ; International Lending and Debt Problems ; Open Economy Macroeconomics
• Subject: reserves ; pecuniary externality ; cyclicality of net capital flows ; Kapitalflussrechnung ; Adverse Selektion ; Schock ; Entwicklungsländer ; Industrieländer

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kim, Yun Jung ; Zhang, Jing
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2020

Further information

• DOI: doi:10.21033/wp-2020-27
• Handle: http://hdl.handle.net/10419/244241
• Last update: 10.03.2025, 11:45 AM CET