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Uncertainty and episodes of extreme capital flows in the Euro Area

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  • Schmidt, Torsten
  • Zwick, Lina

Abstract

During the Euro Area crisis contractions in international capital flows occurred along with a high level of economic uncertainty. While both factors are able to trigger or amplify economic shocks posing a threat for economic activity, it is a natural question whether they are related. The aim of this paper is to analyse the link between different measures of uncertainty and episodes of extreme capital flows for the EMU-12 countries using gross capital flows. We find that country-specific risk factors seem to play an important role in indicating periods of extreme capital flows. Moreover, country-specific uncertainty seems to be more relevant for foreign direct investors and for those in stressed countries of the Euro Area.

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  • Schmidt, Torsten & Zwick, Lina, 2015. "Uncertainty and episodes of extreme capital flows in the Euro Area," Economic Modelling, Elsevier, vol. 48(C), pages 343-356.
    • Handle: RePEc:eee:ecmode:v:48:y:2015:i:c:p:343-356
    DOI: 10.1016/j.econmod.2014.10.047
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    8. Sangyup Choi & Jiri Havel, 2023. "Geopolitical Risk and Foreign Portfolio Investment: A Tale of Advanced and Emerging Markets," Working papers 2023rwp-221, Yonsei University, Yonsei Economics Research Institute.
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    11. Timmer , Yannick, 2015. "TARGET2 balances and the adjustment of capital flows in the Euro area," European Economic Letters, European Economics Letters Group, vol. 4(1), pages 15-19.
    12. Stefanos Ioannou, 2017. "Credit Rating Downgrades and Sudden Stops of Capital Flows in the Eurozone," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 1-36, October.
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    More about this item

    Keywords

    Capital flows; Uncertainty; Euro Area crisis; Sudden stops; Retrenchment;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G01 - Financial Economics - - General - - - Financial Crises

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