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

Hong Kong Institute for Monetary Research Working Paper No. 38/2011

53 Pages Posted: 1 Jan 2012

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)

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2011

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, second across types of flows, with banking flows being the hardest hit due to their sensitivity of risk perception, and third 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.

Suggested Citation

Milesi-Ferretti, Gian Maria and Tille, Cedric, The Great Retrenchment: International Capital Flows During the Global Financial Crisis (December 28, 2011). Hong Kong Institute for Monetary Research Working Paper No. 38/2011. Available at SSRN: https://ssrn.com/abstract=1977374 or http://dx.doi.org/10.2139/ssrn.1977374

Gian Maria Milesi-Ferretti

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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Cedric Tille (Contact Author)

Graduate Institute of International and Development Studies (HEI) ( email )

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Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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