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Gross capital flows and the balance-of-payments: a balance sheet perspective

Author

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  • Karsten Kohler

    (University of Leeds)

Abstract

Gross capital flows have gained increasing attention in empirical research over the last decade. Due to their effects on current accounts and financial stability, gross flows are highly relevant for key issues in macroeconomics, political economy, and public policy. However, the exact relationship between gross flows, net flows and current accounts is often poorly understood. These notes aim to clarify some basic features and implications of gross capital flows. Balance-of-payments and balance-sheet accounting is utilised to illustrate how different kinds of gross flows play out on domestic balance sheets and in the balance-of-payments. Organised around nine propositions, the notes clarify the relationship between gross flows, net flows, and trade flows; explain some interesting properties of pure financial flows; discuss issues related to exchange rates and currency unions; and clarify the nature of sudden stop crises.

Suggested Citation

  • Karsten Kohler, 2020. "Gross capital flows and the balance-of-payments: a balance sheet perspective," Working Papers PKWP2019, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2019
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    References listed on IDEAS

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    More about this item

    Keywords

    Gross capital flows; balance-of-payments; current account; imbalances; trilemma; TARGET2; sudden stop;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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