Broner, FernandoDidier, TatianaErce, AitorSchmukler, Sergio L.2012-03-192012-03-192011-08-01https://hdl.handle.net/10986/3531This 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.CC BY 3.0 IGOACCOUNTINGASSET PRICINGASYMMETRIC INFORMATIONBALANCE OF PAYMENTBALANCE OF PAYMENTSBANK LIQUIDITYBANK LOANSBANKING CRISESBONDBUSINESS CYCLEBUSINESS CYCLESCAPITAL ACCOUNTSCAPITAL ACCUMULATIONCAPITAL FLIGHTCAPITAL FLOWCAPITAL FLOWSCAPITAL INFLOWSCAPITAL MOVEMENTSCAPITAL OUTFLOWSCENTRAL BANKCREDITORSCRISIS COUNTRYCRISIS EPISODESCURRENCYCURRENCY CRASHESCURRENCY CRISESCURRENCY CRISISCURRENT ACCOUNTCYCLICAL BEHAVIORDATA AVAILABILITYDEBTDEBT CONTRACTSDEBT CRISESDEBT FLOWSDEBT SERVICEDEBT SERVICE PAYMENTSDEBTORSDEVELOPING COUNTRIESDEVELOPING ECONOMIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDOMESTIC ASSETSDOMESTIC CAPITALDOMESTIC CURRENCYDOMESTIC DEBTDOMESTIC ECONOMYDOMESTIC EQUITYDOMESTIC INVESTORSDOMESTIC MARKETSDOMESTIC PRICEDOMESTIC PRICE LEVELDOMESTIC RESIDENTSECONOMIC ACTIVITYECONOMIC DOWNTURNSECONOMIC OUTLOOKECONOMIC REVIEWECONOMICS RESEARCHEMERGING MARKETEMERGING MARKET PORTFOLIOSEMERGING MARKETSEMPIRICAL EVIDENCEEQUITY FLOWSEQUITY INFLOWSEXCHANGE RATEEXCHANGE RATESEXPECTED RETURNSEXTERNAL ASSETSEXTERNAL DEBTEXTERNAL FINANCEFINANCIAL ACCOUNTFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DERIVATIVESFINANCIAL DISTRESSFINANCIAL FLOWSFINANCIAL INTEGRATIONFINANCIAL STUDIESFINANCIAL SUPPORTFINANCIAL TRANSACTIONSFOREIGN ASSETSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENTSFOREIGN EQUITYFOREIGN HOLDERSFOREIGN INVESTMENTSFOREIGN INVESTORSFOREIGN PORTFOLIOFOREIGN PORTFOLIO INVESTORSGDPGLOBALIZATIONGROWTH RATESHOLDINGSINCOMEINCOME GROUPSINCOME LEVELINCOME LEVELSINCOMPLETE MARKETSINFORMATIONAL ASYMMETRYINTERNATIONAL BANKINTERNATIONAL BUSINESSINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL INVESTMENTINTERNATIONAL INVESTORSINTERNATIONAL MACROECONOMICSINTERNATIONAL MONETARY FUNDINTERNATIONAL PORTFOLIOINTERNATIONAL PORTFOLIOSINTERNATIONAL RESERVEINTERNATIONAL RESERVESINVESTINGINVESTMENT ASSETSINVESTMENT FLOWSLEADING INDICATORSLESS DEVELOPED COUNTRIESLIABILITYLIQUIDITYLIQUIDITY CRISESLOCAL CURRENCYLONG-TERM CAPITALLOW-INCOME COUNTRIESMACRO MODELSMACROECONOMICSMARKET VALUATIONSMEDIAN VALUEMIDDLE INCOME COUNTRIESMIDDLE-INCOME COUNTRIESMONETARY FUNDNATIONAL INCOMENET CAPITALNET CAPITAL FLOWSNET FLOWSOFFICIAL FLOWSOFFSHORE FINANCIAL CENTERSOPEN ECONOMIESOPEN ECONOMYOUTPUTOUTPUT GAPOUTPUT LOSSESPARTICULAR COUNTRIESPARTICULAR COUNTRYPOLICY REFORMPOLICY RESEARCHPOLITICAL ECONOMYPORTFOLIOPORTFOLIO CHOICEPORTFOLIO FLOWSPORTFOLIO INVESTMENTPORTFOLIO INVESTMENTSPORTFOLIOSPOST-CRISIS PERIODPOST-CRISIS PERIODSPREVIOUS CRISISPRIVATE CAPITALPRIVATE CAPITAL FLOWSPROBABILITY OF DEFAULTPRODUCTIVITYPROPERTY RIGHTSREAL EXCHANGEREAL GDPRETURNRISK AVERSIONSECONDARY MARKETSSMALL COUNTRIESSOVEREIGN RISKSTANDARD DEVIATIONSTOCK MARKETSYSTEMIC BANKING CRISESTAXTRADE BALANCETRADE CREDITTRADINGTURNOVERVALUATIONVENTURE CAPITALISTVOLATILE CAPITALVOLATILE CAPITAL FLOWSVOLATILE FLOWVOLATILITYWEALTHWORLD DEVELOPMENT INDICATORSWorld Bank10.1596/1813-9450-5768