International reserves and gross capital flows: dynamics during financial stress

Enrique Alberola, Aitor Erce and Jose Maria Serena Garralda

No 110, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper explores the role of international reserves as a stabilizer of international capital flows during periods of global financial stress. In contrast with previous contributions, aimed at explaining net capital flows, we focus on the behavior of gross capital flows. We analyze an extensive cross-country quarterly database using event analyses and standard panel regressions. We document significant heterogeneity in the response of resident investors to financial stress and relate it to a previously undocumented channel through which reserves are useful during financial stress. International reserves facilitate financial disinvestment overseas by residents, offsetting the simultaneous drop in foreign financing.

Date: 2012
New Economics Papers: this item is included in nep-mon and nep-opm
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Working Paper: International reserves and gross capital flows. Dynamics during financial stress (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:110

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