Advanced Search
MyIDEAS: Login

Gross capital flows: dynamics and crises

Contents:

Author Info

  • Fernando Broner

    ()
    (CREI and Universitat Pompeu Fabra)

  • Tatiana Didier

    ()
    (World Bank)

  • Aitor Erce

    ()
    (Banco de España)

  • Sergio L. Schmukler

    ()
    (World Bank)

Abstract

This paper analyzes the joint behavior of international capital flows by foreigners and domestic agents over the business cycle and during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile relative to net capital flows. Namely, when foreigners invest in a country domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, especially during severe ones, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This evidence sheds light on the nature of the shocks driving international capital flows and discriminates among existing theories. Our findings are consistent with shocks that affect foreigners and domestic agents asymmetrically - e.g. sovereign risk and asymmetric information - over productivity shocks.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1039e.pdf
File Function: First version, April 2011
Download Restriction: no

Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1039.

as in new window
Length: 52 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:bde:wpaper:1039

Contact details of provider:
Email:
Web page: http://www.bde.es/
More information through EDIRC

Related research

Keywords: Gross capital flows; net capital flows; domestic investors; foreign investors; crises;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Albuquerque, Rui & Bauer, Gregory & Schneider, Martin, 2005. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," CEPR Discussion Papers 5159, C.E.P.R. Discussion Papers.
  2. Michael B Devereux, 2007. "Financial Globalization and Emerging Market Portfolios," IMES Discussion Paper Series 07-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Aart Kraay & Norman Loayza & Luis Serven & Jaume Ventura, 2000. "Country Portfolios," NBER Working Papers 7795, National Bureau of Economic Research, Inc.
  4. Kevin Cowan & Jose De Gregorio & Alejandro Micco & Christopher Neilson, 2007. "Financial Diversification, Sudden Stops and Sudden Starts," Working Papers Central Bank of Chile 423, Central Bank of Chile.
  5. Paul Krugman, 2000. "Fire-Sale FDI," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 43-58 National Bureau of Economic Research, Inc.
  6. Michael B. Devereux & Alan Sutherland, 2011. "Country Portfolios In Open Economy Macro‐Models," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 337-369, 04.
  7. Hyuk Choe & Bong-Chan Kho & Rene M. Stulz, 2004. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," NBER Working Papers 10502, National Bureau of Economic Research, Inc.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "The Forgotten History of Domestic Debt," NBER Working Papers 13946, National Bureau of Economic Research, Inc.
  9. Devereux, Michael B & Sutherland, Alan, 2009. "Valuation Effects and the Dynamics of Net External Assets," CEPR Discussion Papers 7273, C.E.P.R. Discussion Papers.
  10. Cédric Tille & Eric van Wincoop, 2007. "International capital flows," Staff Reports 280, Federal Reserve Bank of New York.
  11. Fernando Broner & Guido Lorenzoni & Sergio L. Schmukler, 2011. "Why Do Emerging Economies Borrow Short Term?," Working Papers 308, Barcelona Graduate School of Economics.
  12. Guillermo Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  13. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers 5220, C.E.P.R. Discussion Papers.
  14. Ceyhun Bora Durdu & Enrique G. Mendoza & Marco E. Terrones, 2007. "Precautionary demand for foreign assets in sudden stop economies: an assessment of the new mercantilism," International Finance Discussion Papers 911, Board of Governors of the Federal Reserve System (U.S.).
  15. Coeurdacier, Nicolas & Kollmann, Robert Miguel W. K. & Martin, Philippe J., 2008. "International portfolios, capital accumulation and foreign assets dynamics," Discussion Paper Series 1: Economic Studies 2008,19, Deutsche Bundesbank, Research Centre.
  16. Mark, Aguiar & Gopinath, Gita, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," Scholarly Articles 3634155, Harvard University Department of Economics.
  17. Broner, Fernando A & Martin, Alberto & Ventura, Jaume, 2007. "Sovereign Risk and Secondary Markets," CEPR Discussion Papers 6055, C.E.P.R. Discussion Papers.
  18. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-80, December.
  19. Anna Pavlova & Roberto Rigobon, 2007. "An Asset-Pricing View of External Adjustment," NBER Working Papers 13468, National Bureau of Economic Research, Inc.
  20. Kraay, Aart & Ventura, Jaume, 1997. "Current accounts in debtor and creditor countries," Policy Research Working Paper Series 1825, The World Bank.
  21. Javier Bianchi & Juan Carlos Hatchondo, 2013. "International reserves and rollover risk," Globalization and Monetary Policy Institute Working Paper 151, Federal Reserve Bank of Dallas.
  22. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," IDB Publications 6747, Inter-American Development Bank.
  23. Martin D D Evans & Viktoria Hnatkovska, 2006. "International Capital Flows Returns and World Financial Integration," 2006 Meeting Papers 60, Society for Economic Dynamics.
  24. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January.
  25. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  26. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  27. Gian-Maria Milesi-Ferretti, Cédric Tille, 2010. "The Great Retrenchment: International Capital Flows During the Global Financial Crisis," IHEID Working Papers 18-2010, Economics Section, The Graduate Institute of International Studies, revised 15 Sep 2010.
  28. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
  29. Mark Aguiar & Gita Gopinath, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 439-452, August.
  30. Alfaro, Laura & Kanczuk, Fabio, 2009. "Optimal reserve management and sovereign debt," Journal of International Economics, Elsevier, vol. 77(1), pages 23-36, February.
  31. Jillian Faucette & Alexander Rothenberg & Francis Warnock, 2005. "Outflows-induced sudden stops," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(2), pages 119-129.
  32. Calderon, Cesar & Kubota, Megumi, 2011. "Sudden stops : are global and local investors alike ?," Policy Research Working Paper Series 5569, The World Bank.
  33. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International financial adjustment," Proceedings, Federal Reserve Bank of San Francisco.
  34. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
  35. Cédric Tille & Eric van Wincoop, 2008. "International Capital Flows under Dispersed Information: Theory and Evidence," NBER Working Papers 14390, National Bureau of Economic Research, Inc.
  36. Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2, May.
  37. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2013. "Gross capital flows: Dynamics and crises," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 113-133.
  38. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Country fund discounts and the Mexican crisis of December 1994: did local residents turn pessimistic before international investors?," International Finance Discussion Papers 563, Board of Governors of the Federal Reserve System (U.S.).
  39. Jeanne, Olivier & Rancière, Romain, 2008. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," CEPR Discussion Papers 6723, C.E.P.R. Discussion Papers.
  40. Anna Pavlova & Roberto Rigobon, 2010. "International Macro-Finance," NBER Working Papers 16630, National Bureau of Economic Research, Inc.
  41. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
  42. De Paoli, Bianca & Hoggarth, Glenn & Saporta, Victoria, 2009. "Output costs of sovereign crises: some empirical estimates," Bank of England working papers 362, Bank of England.
  43. Rui Albuquerque & Gregory H. Bauer & Martin Schneider, 2007. "International Equity Flows and Returns: A Quantitative Equilibrium Approach -super-1," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 1-30.
  44. Obstfeld, Maurice, 2011. "Financial Flows, Financial Crises, and Global Imbalances," CEPR Discussion Papers 8611, C.E.P.R. Discussion Papers.
  45. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
  46. Fernando A. Broner & Roberto Rigobon, 2004. "Why are capital flows so much volatile in emerging than in developed countries?," Working Papers 196, Barcelona Graduate School of Economics.
  47. Jeffrey A. Frankel & Eduardo A. Cavallo, 2004. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality," NBER Working Papers 10957, National Bureau of Economic Research, Inc.
  48. Kristin J. Forbes & Francis E. Warnock, 2011. "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  49. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "Long-Term Capital Movements," CEG Working Papers 20018, Trinity College Dublin, Department of Economics.
    • Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136 National Bureau of Economic Research, Inc.
  50. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-66, December.
  51. Viral V. Acharya & Hyun Song Shin & Tanju Yorulmazer, 2011. "Crisis Resolution and Bank Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2166-2205.
  52. Dvorak, Tomas, 2003. "Gross capital flows and asymmetric information," Journal of International Money and Finance, Elsevier, vol. 22(6), pages 835-864, November.
  53. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
  54. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
  55. Alexander D. Rothenberg & Francis E. Warnock, 2011. "Sudden Flight and True Sudden Stops," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 509-524, 08.
  56. Malcolm Baker & C. Fritz Foley & Jeffrey Wurgler, 2009. "Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 337-369, January.
  57. Andrew Powell & Dilip Ratha & Sanket Mohapatra, 2002. "Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences," Business School Working Papers veinticinco, Universidad Torcuato Di Tella.
  58. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:1039. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.