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Volume :27 Issue : 2 1999
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The Determinants of Hot Money
Auther : Naif Al -Mutairi-Mohammed Al Saqa
This study aims at investigating macroeconomic determinants of hot money outflow from Kuwait. Using two different approaches, we estimated the total outflow of hot money during the period 1975 - 1995. Aپsingle equation model of the macroeconomic determinants of the outflow of hot money was built and estimated for Kuwait. Results show that the major determinants are; the financial repression, i.e. the difference between domestic and international interest rates, overvaluation of the Kuwaiti Dinar of its long run equilibrium level, political and economic instability in Kuwait, and lagging levels of outflow. Results have several important implications for macroeconomic policy making in Kuwait, especially regarding interest and exchange rate policies.