The Effects of Portfolio Inflow and Outflow on the Economy

Chapter 6 examined the effects of various categories of capital inflows on South African financial and real economic activity. However, various studies in the literature have shown that the aggregation of capital flows may not reveal the different effects of inflows and outflows. We define inflows (outflows) refer to capital movements of liabilities (assets) of a country. This chapter assesses the effects of unexpected positive portfolio inflows and outflows shock on South African financial and real economic activity variables. What would have happened to South African GDP growth in the absence of the portfolio inflow and outflow shocks? What do counterfactual scenarios suggest the impact of portfolio flow shocks is on the exchange rate?