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Do European capital flows comove?

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  • Silvio Contessi
  • Pierangelo DePace

Abstract

We study the cross-sectional correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. We first use Ng's (2006) "uniform spacing" methodology to rank cross-sectional correlations (i.e., which flows comove more) and to shed light on potential common factors driving international equity flows. We find that a common factor structure is suitable for equity flows disaggregated by sign but not for net and total flows. We only find mixed evidence that correlations between types of flows have changed since the introduction of the euro.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2008-042.

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Date of creation: 2008
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Handle: RePEc:fip:fedlwp:2008-042

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Keywords: Capital investments ; European Union countries;

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  1. Smith, Katherine A. & Valderrama, Diego, 2009. "The composition of capital inflows when emerging market firms face financing constraints," Journal of Development Economics, Elsevier, vol. 89(2), pages 223-234, July.
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  7. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  8. Contessi, Silvio & De Pace, Pierangelo & Francis, Johanna L., 2013. "The cyclical properties of disaggregated capital flows," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 528-555.
  9. Brian M. Doyle & Jon Faust, 2005. "Breaks in the Variability and Comovement of G-7 Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 721-740, November.
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  11. Alexander D. Rothenberg & Francis E. Warnock, 2006. "Sudden Flight and True Sudden Stops," NBER Working Papers 12726, National Bureau of Economic Research, Inc.
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  13. Donald W.K. Andrews, 2004. "Cross-section Regression with Common Shocks," Yale School of Management Working Papers ysm401, Yale School of Management.
  14. Eric Van Wincoop & Cedric Tille, 2007. "International Capital Flows," NBER Working Papers 12856, National Bureau of Economic Research, Inc.
  15. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  16. Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
  17. De Pace, Pierangelo, 2013. "Currency Union, Free-Trade Areas, And Business Cycle Synchronization," Macroeconomic Dynamics, Cambridge University Press, vol. 17(03), pages 646-680, April.
  18. Ng, Serena, 2006. "Testing Cross-Section Correlation in Panel Data Using Spacings," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 12-23, January.
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Cited by:
  1. Giofré, Maela, 2013. "International diversification: Households versus institutional investors," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 145-176.
  2. Silvio Contessi & Pierangelo De Pace & Massimo Guidolin, 2013. "How did the financial crisis alter the correlations of U.S. yield spreads?," Working Papers 2013-005, Federal Reserve Bank of St. Louis.

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