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Uncertainty and episodes of extreme capital flows in the Euro Area

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  • Schmidt, Torsten
  • Zwick, Lina

Abstract

During the Euro Area crisis contractions in international capital flows occurred along with a high level of economic uncertainty. While both factors are able to trigger or amplify economic shocks posing a threat for economic activity, it is a natural question whether they are related. The aim of this paper is to analyse the link between different measures of uncertainty and episodes of extreme capital flows for the EMU-12 countries using gross capital flows. We find that country-specific risk factors seem to play an important role in indicating periods of extreme capital flows. Moreover, country-specific uncertainty seems to be more relevant for foreign direct investors and for those in stressed countries of the Euro Area.

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  • Schmidt, Torsten & Zwick, Lina, 2015. "Uncertainty and episodes of extreme capital flows in the Euro Area," Economic Modelling, Elsevier, vol. 48(C), pages 343-356.
    • Handle: RePEc:eee:ecmode:v:48:y:2015:i:c:p:343-356
    DOI: 10.1016/j.econmod.2014.10.047
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    More about this item

    Keywords

    Capital flows; Uncertainty; Euro Area crisis; Sudden stops; Retrenchment;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G01 - Financial Economics - - General - - - Financial Crises

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