This paper examines the major determinants of net capital inflows. To account for meaningful differences in responses, 47 countries used for the empirical analysis are divided into advanced economies (AEs) and emerging market economies (EMEs). These countries are further divided into subgroups to consider the heterogeneous determinants for AEs and EMEs. Our empirical examination reveals notable heterogeneity across country groups. Both push and pull factors are statistically significant in AEs, but push factors play a larger role for EMEs, though pull factor influence is observed in a few EME subgroups. Our empirical findings are robust to alternative model specifications, alternative measures of capital flows and interest rates, as well as the use of an alternative sample period.

We discuss the macroeconomic effects of asset-based reserve requirements (ABRR) in a dynamic stochastic general equilibrium model. In contrast to the conventional reserve requirement system, ABRR impose reserve requirements on financial institutions’ asset holdings. The policy can be used for macro prudential purposes to reduce pro-cyclicality of financial institutions. Using a financial friction New Keynesian model based on Meh and Moran ( 2010 ), we show that ABRR can be a more effective instrument in the presence of sector-specific shocks than the Basel-III type countercyclical capital buffer. The reason is that the former policy can adjust the asset return of the specific sector hit by the shock, whereas the latter does not have such sector-specific treatment.