Coincident Indicators of Capital Flows

IMF Working Papers, February 1, 2012

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Coincident Indicators of Capital Flows

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Bibliographic details

• Authors: Malika Pant, Yanliang Miao
• Published: February 1, 2012
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781463937737.001

Summary

• Capital flows data from Balance of Payments statistics often lag 3-6 months, which reduces timeliness for surveillance and policy deliberation.
• The paper proposes two coincident composite indicators for capital flows that improve upon existing proxies.
• A timelier variant uses EPFR high frequency coverage of gross bond and equity flows to indicate foreign investors' sentiment.

Key findings

• The most widely used proxy, the capital tracker, often overpredicts net flows by 30 percent.
• A composite indicator that assigns the capital tracker a lesser but optimally estimated weight and incorporates other regional and global coincident correlates of capital flows outperforms the capital tracker in its original format.

Indicators and methodology

• Two coincident composite indicators are proposed:
  • A composite indicator for net flows that augments the capital tracker with regional and global coincident correlates and reweights the tracker optimally.
  • A timelier indicator that utilizes EPFR high frequency coverage of gross bond and equity flows as a proxy for foreign investors' sentiment.
• The approach explicitly seeks to address the 3-6 months reporting lag in Balance of Payments statistics by relying on higher-frequency and correlated series.

Policy implications and use

• Improved coincident indicators can enhance timely surveillance and policy deliberation by providing more accurate real-time signals of capital flow developments than the capital tracker alone.
• The EPFR-based high-frequency indicator can complement the composite net flows indicator for even timelier monitoring of investor sentiment in bond and equity markets.

Source: IMF Working Paper "Coincident Indicators of Capital Flows" by Malika Pant and Yanliang Miao, February 1, 2012.

Content in this bundle

• Appendix 1: Lags of BoP and merchandise trade data in selected EMs
  • Appendix 1: Lags of BoP and merchandise trade data in selected EMs (Markdown version)
  • Appendix 1: Lags of BoP and merchandise trade data in selected EMs (PDF)