Gross Capital Flows: Dynamics and Crises

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

No 8591, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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

Keywords: Gross capital flows; Net capital flows; Domestic investors; Foreign investors; Crises (search for similar items in EconPapers)
JEL-codes: F21 F30 F32 G01 (search for similar items in EconPapers)
Date: 2011-10
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 (42)

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Related works:
Working Paper: Gross Capital Flows: Dynamics and Crises (2015)
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)
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