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Gross capital flows: dynamics and crises

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

No 5768, Policy Research Working Paper Series from The World Bank

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. The authors 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. The findings seem consistent with shocks that affect foreign and domestic agents asymmetrically, such as sovereign risk and asymmetric information.

Keywords: Emerging Markets; Macroeconomic Management; Economic Theory&Research; Debt Markets; Capital Flows (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-opm
Date: 2011-08-01
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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 (2010) Downloads
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