Financial Centers and the Geography of Capital Flows.

This paper examines financial centers and the geography of capital flows. In empirical work on bilateral portfolio capital flows, a common assumption is that the countries the flows are attributed to are also the countries of the security's issuer, seller, or ultimate buyer. By estimating United States investors' holdings of debt and equities in over 40 countries and, for the same countries, foreign investors' holdings of U.S. debt and equities, a comparison of the authors' estimates with data from benchmark surveys offers insight into U.S. data on international debt and equity transactions. The analysis indicates that the data do not track the location of U.S. investment or the location of investors in U.S. assets very well due to the U.S. portfolio flow data collection system being designed to measure cross-border transactions with the majority of the flows being attributed to financial centers. By aggregating the country-level estimates, the authors find that U.S. data accurately portray net inflows into U.S. equities and net outflows into foreign bonds. This working paper can be found at the United States Federal Reserve Board's International Finance Discussion Papers. You can access it by going to http://www.federalreserve.gov/pubs/ifdp/.