Gross Capital Flows : Dynamics and Crises

This paper analyzes the joint behavior of international capital flows by foreign and domestic agents -- gross capital flows -- over the business cycle and during financial crises. The authors show that gross capital flows are very large and volatile, especially relative to net capital flows. When foreigners invest in a country, domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical, with foreigners investing more in the country and domestic agents investing more abroad during expansions. During crises, especially during severe ones, there is retrenchment, that is, a reduction in both capital inflows by foreigners and capital outflows by domestic agents. This evidence sheds light on the nature of shocks driving capital flows and helps discriminate among existing theories. The findings seem consistent with shocks that affect foreign and domestic agents asymmetrically, such as sovereign risk and asymmetric information.

Bibliographic Details

Main Authors:	Broner, Fernando, Didier, Tatiana, Erce, Aitor, Schmukler, Sergio L.
Language:	English
Published:	2011-08-01
Subjects:	ACCOUNTING, ASSET PRICING, ASYMMETRIC INFORMATION, BALANCE OF PAYMENT, BALANCE OF PAYMENTS, BANK LIQUIDITY, BANK LOANS, BANKING CRISES, BOND, BUSINESS CYCLE, BUSINESS CYCLES, CAPITAL ACCOUNTS, CAPITAL ACCUMULATION, CAPITAL FLIGHT, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MOVEMENTS, CAPITAL OUTFLOWS, CENTRAL BANK, CREDITORS, CRISIS COUNTRY, CRISIS EPISODES, CURRENCY, CURRENCY CRASHES, CURRENCY CRISES, CURRENCY CRISIS, CURRENT ACCOUNT, CYCLICAL BEHAVIOR, DATA AVAILABILITY, DEBT, DEBT CONTRACTS, DEBT CRISES, DEBT FLOWS, DEBT SERVICE, DEBT SERVICE PAYMENTS, DEBTORS, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DOMESTIC ASSETS, DOMESTIC CAPITAL, DOMESTIC CURRENCY, DOMESTIC DEBT, DOMESTIC ECONOMY, DOMESTIC EQUITY, DOMESTIC INVESTORS, DOMESTIC MARKETS, DOMESTIC PRICE, DOMESTIC PRICE LEVEL, DOMESTIC RESIDENTS, ECONOMIC ACTIVITY, ECONOMIC DOWNTURNS, ECONOMIC OUTLOOK, ECONOMIC REVIEW, ECONOMICS RESEARCH, EMERGING MARKET, EMERGING MARKET PORTFOLIOS, EMERGING MARKETS, EMPIRICAL EVIDENCE, EQUITY FLOWS, EQUITY INFLOWS, EXCHANGE RATE, EXCHANGE RATES, EXPECTED RETURNS, EXTERNAL ASSETS, EXTERNAL DEBT, EXTERNAL FINANCE, FINANCIAL ACCOUNT, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DERIVATIVES, FINANCIAL DISTRESS, FINANCIAL FLOWS, FINANCIAL INTEGRATION, FINANCIAL STUDIES, FINANCIAL SUPPORT, FINANCIAL TRANSACTIONS, FOREIGN ASSETS, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN CURRENCY DEBT, FOREIGN DIRECT INVESTMENT, FOREIGN DIRECT INVESTMENTS, FOREIGN EQUITY, FOREIGN HOLDERS, FOREIGN INVESTMENTS, FOREIGN INVESTORS, FOREIGN PORTFOLIO, FOREIGN PORTFOLIO INVESTORS, GDP, GLOBALIZATION, GROWTH RATES, HOLDINGS, INCOME, INCOME GROUPS, INCOME LEVEL, INCOME LEVELS, INCOMPLETE MARKETS, INFORMATIONAL ASYMMETRY, INTERNATIONAL BANK, INTERNATIONAL BUSINESS, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL FLOWS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL INVESTMENT, INTERNATIONAL INVESTORS, INTERNATIONAL MACROECONOMICS, INTERNATIONAL MONETARY FUND, INTERNATIONAL PORTFOLIO, INTERNATIONAL PORTFOLIOS, INTERNATIONAL RESERVE, INTERNATIONAL RESERVES, INVESTING, INVESTMENT ASSETS, INVESTMENT FLOWS, LEADING INDICATORS, LESS DEVELOPED COUNTRIES, LIABILITY, LIQUIDITY, LIQUIDITY CRISES, LOCAL CURRENCY, LONG-TERM CAPITAL, LOW-INCOME COUNTRIES, MACRO MODELS, MACROECONOMICS, MARKET VALUATIONS, MEDIAN VALUE, MIDDLE INCOME COUNTRIES, MIDDLE-INCOME COUNTRIES, MONETARY FUND, NATIONAL INCOME, NET CAPITAL, NET CAPITAL FLOWS, NET FLOWS, OFFICIAL FLOWS, OFFSHORE FINANCIAL CENTERS, OPEN ECONOMIES, OPEN ECONOMY, OUTPUT, OUTPUT GAP, OUTPUT LOSSES, PARTICULAR COUNTRIES, PARTICULAR COUNTRY, POLICY REFORM, POLICY RESEARCH, POLITICAL ECONOMY, PORTFOLIO, PORTFOLIO CHOICE, PORTFOLIO FLOWS, PORTFOLIO INVESTMENT, PORTFOLIO INVESTMENTS, PORTFOLIOS, POST-CRISIS PERIOD, POST-CRISIS PERIODS, PREVIOUS CRISIS, PRIVATE CAPITAL, PRIVATE CAPITAL FLOWS, PROBABILITY OF DEFAULT, PRODUCTIVITY, PROPERTY RIGHTS, REAL EXCHANGE, REAL GDP, RETURN, RISK AVERSION, SECONDARY MARKETS, SMALL COUNTRIES, SOVEREIGN RISK, STANDARD DEVIATION, STOCK MARKET, SYSTEMIC BANKING CRISES, TAX, TRADE BALANCE, TRADE CREDIT, TRADING, TURNOVER, VALUATION, VENTURE CAPITALIST, VOLATILE CAPITAL, VOLATILE CAPITAL FLOWS, VOLATILE FLOW, VOLATILITY, WEALTH, WORLD DEVELOPMENT INDICATORS,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110822093834 https://hdl.handle.net/10986/3531
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