The Great Retrenchment: International Capital Flows During the Global Financial Crisis

58 Pages Posted: 4 Apr 2011

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Cdric Tille

affiliation not provided to SSRN

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Abstract

The current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization. We identify the stylized facts and main drivers of this development. The retrenchment in international capital flows is a highly heterogeneous phenomenon: first, across time, being especially dramatic in the wake of the Lehman Brothers failure; secondly, across types of flows, with banking flows being the hardest hit due to their sensitivity of risk perception; and thirdly, across regions, with emerging economies experiencing a shorter-lived retrenchment than developed economies. Our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration, its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows. Gian-Maria Milesi-Ferretti and Cdric Tille

Suggested Citation

Milesi-Ferretti, Gian Maria and Tille, Cdric, The Great Retrenchment: International Capital Flows During the Global Financial Crisis. Economic Policy, Vol. 26, No. 66, pp. 285-342, 2011. Available at SSRN: https://ssrn.com/abstract=1801027 or http://dx.doi.org/10.1111/j.1468-0327.2011.00263.x

Gian Maria Milesi-Ferretti (Contact Author)

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Cdric Tille

affiliation not provided to SSRN

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