Gross capital flows: dynamics and crises

Fernando Broner, Tatiana Didier (), Aitor Erce and Sergio Schmukler

No 1039, Working Papers from Banco de España

Abstract: This paper analyzes the joint behavior of international capital flows by foreigners and domestic agents over the business cycle and during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile relative to net capital flows. Namely, when foreigners invest in a country domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, especially during severe ones, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This evidence sheds light on the nature of the shocks driving international capital flows and discriminates among existing theories. Our findings are consistent with shocks that affect foreigners and domestic agents asymmetrically - e.g. sovereign risk and asymmetric information - over productivity shocks.

Keywords: Gross capital flows; net capital flows; domestic investors; foreign investors; crises (search for similar items in EconPapers)
JEL-codes: F21 F32 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/10/Fic/dt1039e.pdf First version, April 2011 (application/pdf)

Related works:
Journal Article: Gross capital flows: Dynamics and crises (2013)
Working Paper: Gross capital flows: Dynamics and crises (2012)
Working Paper: Gross Capital Flows: Dynamics and Crises (2011)
Working Paper: Gross capital flows: dynamics and crises (2011)
Working Paper: Gross Capital Flows: Dynamics and Crises (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1039

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