Short and long-run relations between capital netflows and the differential between American and Brazilian interest rates
DOI:
https://doi.org/10.11606/1980-5330/ea196687Keywords:
capital netflows, interest rates, cointegration, spectral analysisAbstract
This paper aims to investigate the possible cointegration of the difference between the Brazilian and American real interest rates and the Brazilian capital netflows. Our main methodology is that of cointegrating processes, using spectral analysis. The results indicate the presence of fractional cointegration between the two time series. A 1 p.p. increase in this interest rate difference drives more than US$ 990million in capital netflows directed to Brazil. To the best of our knowledge, this is the first attempt to use fractional cointegration to understand the relationship between these two variables.
Downloads
References
ALBUQUERQUE, Rui; LOAYZA, Norman; SERVÉN, Luis. World market integration through the lens of foreign direct investors. Journal of International Economics, v. 66, p. 267–295, 2005.
BAILLIE, Richard T.; BOLLERSLEV, Tim. Cointegration, fractional cointegration, and exchange rate dynamics. The Journal of Finance, v. 49, p. 737–745, 1994.
BERAN, Jan et al. Long-Memory Processes. Berlin: Springer, 2013.
BYRNE, Joseph P.; FIESS, Norbert. International capital flows to emerging and developing countries: national and global determinants. [S. l.], 2011.
CALVO, Guillermo A.; LEIDERMAN, Leonardo; REINHART, Carmen M. Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors. Staff Papers—International Monetary Fund, v. 40, p. 108–151, 1993.
CARDOSO, Eliana; GOLDFAJN, Ilan. Capital Flows to Brazil: The Endogeneity of Capital Controls. Staff Papers—International Monetary Fund, v. 45, p. 161–202, 1998.
CHEUNG, Yin-Wong; LAI, Kon S. A fractional cointegration analysis of purchasing power parity. Journal of Business & Economic Statistics, v. 11, p. 103–112, 1993.
CLARK, John et al. Emerging market capital flows and US monetary policy. International Finance, v. 23, p. 2–17, 2019.
CUESTAS, Juan C.; GIL-ALANA, Luis A.; STAEHR, Karsten. Government debt dynamics and the global financial crisis: Has anything changed in the EA12? Economics Letters, v. 124, p. 64–66, 2014.
DASGUPTA, Dipak; RATHA, Dilip. What factors appear to drive private capital flows to developing countries? And how does official lending respond? Washington D. C., 2000.
DE VITA, Glauco; KYAW, Khine S. Determinants of capital flows to developing countries: a structural VAR analysis. Journal of Economic Studies, v. 35, p. 304–322, 2008.
DITTMANN, Ingolf. Error Correction Models for Fractionally Cointegrated Time Series. Journal of Time Series Analysis, v. 25, p. 27–32, 2004.
DITTMANN, Ingolf. Fractional cointegration of voting and non-voting shares. Applied Financial Economics, v. 11, p. 321–332, 2001.
ENGLE, Robert F.; GRANGER, Clive W. J. Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, v. 55, p. 251–276, 1987.
FERNANDEZ-ARIAS, Eduardo. The new wave of private capital inflows: Push or pull? Journal of Development Economics, v. 48, p. 389–418, 1996.
FORBES, Kristin J.; WARNOCK, Francis E. Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics, v. 88, p. 235–251, 2012.
FRATZSCHER, Marcel. Capital flows, push versus pull factors and the global financial crisis. Journal of International Economics, v. 88, p. 341–356, 2012.
GEWEKE, John; PORTER-HUDAK, Susan. The estimation and application of long memory time series models. Journal of Time Series Analysis, v. 4, p. 221–238, 1983.
GRANGER, Clive W. J. Some properties of time series data and their use in econometric model specification. Journal of Econometrics, v. 16, p. 121–130, 1981.
GRUBEL, Herbert G. Internationally Diversified Portfolios: Welfare Gains and Capital Flows. American Economic Review, v. 58, p. 1299–1314, 1968.
HERRMANN, Sabine; MIHALJEK, Dubravko. The Determinants of Cross-Border Bank Flows to Emerging Markets: New Empirical Evidence on the Spread of Financial Crises. SSRN Electronic Journal, v. 21, p. 479–508, 2010.
HUALDE, Javier; ROBINSON, Peter M. Root-n-consistent estimation of weak fractional cointegration. Journal of Econometrics, v. 140, p. 450–484, 2007.
JOHANSEN, Sören. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, v. 59, p. 1551–1580, 1991.
KILEY, Michael T. The global equilibrium real interest rate: concepts, estimates, and challenges. Annual Review of Financial Economics, v. 12, p. 305–326, 2020.
KOEPKE, Robin. What drives capital flows to emerging markets? A survey of the empirical literature. Journal of Economic Surveys, v. 33, p. 516–540, 2019.
MAKHETHA-KOSI, Palesa; MISHI, Syden; NGONYAMA, Nomasomi. The response of capital flows to interest rate differentials: The case of South Africa. Journal of Economics, v. 7, p. 119–129, 2016.
MCHALE, Ian; PEEL, David. Habit and long memory in UK lottery sales. Economics Letters, v. 109, p. 7–10, 2010.
MONTIEL, Peter; REINHART, Carmen M. Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s. Journal of International Money and Finance, v. 18, p. 619–635, 1999.
OBSTFELD, Maurice. Financial flows, financial crises, and global imbalances. Journal of International Money and Finance, v. 31, p. 469–480, 2012.
PHILLIPS, Peter C. Unit root log periodogram regression. Journal of Econometrics, v. 138, p. 104–124, 2007.
PHILLIPS, Peter C.; OULIARIS, Sam. Testing for cointegration using principal components methods. Journal of Economic Dynamics and Control, v. 12, p. 205–230, 1988.
PRIESTLEY, Maurice B. Spectral Analysis and Time Series. London: Academic Press, 1981.
ROBINSON, Peter M. Semiparametric analysis of long-memory time series. The Annals of Statistics, v. 22, p. 515–539, 1994.
ŞEN, Hüseyin et al. Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships. The Journal of International Trade & Economic Development, v. 29, p. 289–318, 2019.
SINGHANIA, Monica; SAINI, Neha. Determinants of FPI in developed and developing countries. Global Business Review, v. 19, p. 187–213, 2017.
TAYLOR, Mark P.; SARNO, Lucio. Capital Flows to Developing Countries: Longand Short-Term Determinants. The World Bank Economic Review, v. 11, p. 451–470, 1997.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Economia Aplicada
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Funding data
-
Coordenação de Aperfeiçoamento de Pessoal de Nível Superior
Grant numbers 88882.348625/2019-01 -
Conselho Nacional de Desenvolvimento Científico e Tecnológico
Grant numbers 130933/2019-8.
