International Reserves and Gross Capital Flow Dynamics

29 Pages Posted: 2 Oct 2015

See all articles by Enrique Alberola

Enrique Alberola

Bank for International Settlements (BIS)

Aitor Erce


José María Serena

Bank for International Settlements (BIS)

Date Written: October 2015


This paper explores the role of international reserves as a stabiliser of international capital flows, in particular during periods of global financial stress. In contrast with previous contributions, aimed at explaining net capital flows, we focus on the behaviour of gross capital flows. We analyse an extensive cross-country quarterly database, comprising 63 countries for the period 1991-2010, using 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 act as a buffer during financial stress. A robust result of the analysis is that international reserves facilitate financial disinvestment overseas by residents - a fall in capital outflows. This partially offsets the drop in foreign capital inflows observed in such periods. For the whole sample, we also find that larger stocks of international reserves are linked to higher gross inflows and lower gross outflows. These results, which challenge current approaches to measuring reserve adequacy, call for refining such tools to better account for the role of resident investors.

Keywords: Gross capital flows, international reserves, systemic crises, capital retrenchment

JEL Classification: F21, F32, F33

Suggested Citation

Alberola, Enrique and Erce, Aitor and Serena, Jose Maria, International Reserves and Gross Capital Flow Dynamics (October 2015). BIS Working Paper No. 512, Available at SSRN:

Enrique Alberola (Contact Author)

Bank for International Settlements (BIS) ( email )

Ruben Dario 281
Polanco, Miguel Hidalgo
Mexico City, 11580


Aitor Erce

UPNA ( email )


Jose Maria Serena

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

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