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Gross Capital Flows: Dynamics and Crises

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

No 476, Working Papers from Barcelona Graduate School of Economics

Abstract: Revised May 2011 This paper analyzes the behavior of international capital flows by foreigners and domestic agents, especially during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile, especially relative to net capital flows. This is because 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, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This is especially true during severe crises and during systemic crises. The evidence can shed light on the nature of shocks driving international capital flows. It seems to favor shocks that affect foreigners and domestic agents asymmetrically -e.g. sovereign risk and asymmetric information- over productivity shocks.

Keywords: Capital flows; domestic investors; foreign investors; crises (search for similar items in EconPapers)
JEL-codes: F21 F32 (search for similar items in EconPapers)
Date: 2010-06
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Related works:
Journal Article: Gross capital flows: Dynamics and crises (2013) Downloads
Working Paper: Gross capital flows: Dynamics and crises (2012) Downloads
Working Paper: Gross capital flows: dynamics and crises (2011) Downloads
Working Paper: Gross Capital Flows: Dynamics and Crises (2011) Downloads
Working Paper: Gross capital flows: dynamics and crises (2011) Downloads
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