A natural level of capital flows

International portfolio flows converge in the medium run to a country-specific, supply-side estimate of their natural level. Our level capital flows, KF*, has impressive out-of-sample empirical features, greatly improves our ability model notoriously volatile and performs well against in-sample filtering techniques. Further, gap between actual inflows KF* helps predict sudden stop episodes, equity returns, during two largest shocks past few decades: global financial crisis Covid-19 shock.