
Series: Working Papers. 1211.
Author: Enrique Alberola, Aitor Erce and José María Serena.
Published in: Journal of International Money and Finance 60, February 2016, 151-171
and in: Federal Reserve Bank of Dallas, Working Paper N 110
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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.