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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
International reserves and gross capital flows: dynamics during financial stress
Enrique Alberola
Aitor Erce
José Maria Serena
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.


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Enrique Alberola & Aitor Erce & José Maria Serena, International reserves and gross capital flows: dynamics during financial stress, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 110, 2012.
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