International Reserves and Gross Capital Flows - Dynamics During Financial Stress

36 Pages Posted: 22 Feb 2012

See all articles by Enrique Alberola

Enrique Alberola

Bank for International Settlements (BIS)

Aitor Erce

UPNA

José María Serena

Bank for International Settlements (BIS)

Date Written: February 22, 2012

Abstract

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.

Keywords: gross capital flows, international reserves, systemic crises, capital retrenchment

JEL Classification: F21, F32, F33

Suggested Citation

Alberola, Enrique and Erce, Aitor and Serena, Jose Maria, International Reserves and Gross Capital Flows - Dynamics During Financial Stress (February 22, 2012). Banco de Espana Working Paper No. 1211, Available at SSRN: https://ssrn.com/abstract=2009275 or http://dx.doi.org/10.2139/ssrn.2009275

Enrique Alberola (Contact Author)

Bank for International Settlements (BIS) ( email )

Ruben Dario 281
Polanco, Miguel Hidalgo
Mexico City, 11580
Mexico

HOME PAGE: http://www.bis.org/author/enrique_alberola-ila.htm

Aitor Erce

UPNA ( email )

Pamplona
Spain

Jose Maria Serena

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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