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International reserves and gross capital flows. Dynamics during financial stress

  • Enrique Alberola

    ()

    (Banco de España)

  • Aitor Erce

    ()

    (Banco de España)

  • José María Serena

    ()

    (Banco de España)

This paper explores the role of international reserves as a stabilizer of international capital flows during periods of global financial stress. In contrast with previous contributions, aimed at explaining net capital flows, we focus on the behavior of gross capital flows. We analyze an extensive cross-country quarterly database using event analyses and 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 are useful during financial stress. International reserves facilitate financial disinvestment overseas by residents, offsetting the simultaneous drop in foreign financing

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/12/Fich/dt1211e.pdf
File Function: First version, February 2012
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1211.

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Length: 36 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:bde:wpaper:1211
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  1. Ricardo Caballero & Kevin Cowan & Jonathan Kearns, 2005. "Fear of Sudden Stops: Lessons From Australia and Chile," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(4), pages 313-354.
  2. Kristin J. Forbes & Francis E. Warnock, 2011. "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," NBER Working Papers 17351, National Bureau of Economic Research, Inc.
  3. Sebastian Edwards, 2005. "Capital Controls, Sudden Stops and Current Account Reversals," NBER Working Papers 11170, National Bureau of Economic Research, Inc.
  4. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
  5. Fernando Broner & Tatiana Didier & Aitor Erce & Sergio L. Schmukler, 2010. "Gross capital flows: Dynamics and crises," Economics Working Papers 1227, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2012.
  6. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration," NBER Working Papers 14026, National Bureau of Economic Research, Inc.
  7. Ceyhun Bora Durdu & Enrique G. Mendoza & Marco E. Terrones, 2007. "Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Merchantilism," NBER Working Papers 13123, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld, 2011. "International Liquidity: The Fiscal Dimension," NBER Working Papers 17379, National Bureau of Economic Research, Inc.
  9. Gabriel Enrique Alberola & José María Serena, 2009. "Sovereign external assets and the resilience of global imbalances," Banco de Espa�a Working Papers 0834, Banco de Espa�a.
  10. Joshua Aizenman & Yi Sun, 2009. "The Financial Crisis and Sizable International Reserves Depletion: From 'Fear of Floating' to the 'Fear of Losing International Reserves'?," Working Papers 382009, Hong Kong Institute for Monetary Research.
  11. Guillermo Calvo, 2007. "Crises in Emerging Market Economies: A Global Perspective," Working Papers Central Bank of Chile 441, Central Bank of Chile.
  12. 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.
  13. 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.
  14. Carmen Broto & Javier Díaz-Cassou & Aitor Erce-Domínguez, 2008. "Measuring and explaining the volatility of capital flows towards emerging countries," Banco de Espa�a Working Papers 0817, Banco de Espa�a.
  15. repec:idb:brikps:6515 is not listed on IDEAS
  16. Michael D. Bordo & Alberto F. Cavallo & Christopher M. Meissner, 2007. "Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880-1913," NBER Working Papers 13489, National Bureau of Economic Research, Inc.
  17. Ricardo J. Caballero & Stavros Panageas, 2003. "Hedging Sudden Stops and Precautionary Contractions," NBER Working Papers 9778, National Bureau of Economic Research, Inc.
  18. Diego Bastourre & Jorge Carrera & Javier Ibarlucia, 2009. "What is Driving Reserve Accumulation? A Dynamic Panel Data Approach," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 861-877, 09.
  19. Guillermo A. Calvo & Ernesto Talvi, 2005. "Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile," NBER Working Papers 11153, National Bureau of Economic Research, Inc.
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