Gross Capital Flows: Dynamics and Crises

50 Pages Posted: 20 Apr 2016

See all articles by Fernando Broner

Fernando Broner

CREI; Barcelona GSE; Universitat Pompeu Fabra; CEPR

Tatiana Didier

World Bank

Aitor Erce

Banco de España - Associate Directorate General International Affairs

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2011

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

Suggested Citation

Broner, Fernando and Didier, Tatiana and Erce, Aitor and Schmukler, Sergio, Gross Capital Flows: Dynamics and Crises (August 1, 2011). World Bank Policy Research Working Paper No. 5768. Available at SSRN: https://ssrn.com/abstract=1914979

Fernando Broner (Contact Author)

CREI ( email )

Ramon Trias Fargas, 25-27
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HOME PAGE: http://www.crei.cat/people/broner

Barcelona GSE

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2601 (Phone)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
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HOME PAGE: http://www.crei.cat/people/broner

CEPR ( email )

London
United Kingdom
+34 93 542 2601 (Phone)

Tatiana Didier

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States
(202)458-1525 (Phone)

Aitor Erce

Banco de España - Associate Directorate General International Affairs ( email )

Alcala 50
Madrid 28014
Spain

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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