Uncertainty and Episodes of Extreme Capital Flows in the Euro Area

31 Pages Posted: 8 Apr 2014

See all articles by Torsten Schmidt

Torsten Schmidt

Rhine-Westphalia Institute for Economic Research (RWI)

Lina Zwick

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Date Written: Dec 7, 2013

Abstract

During the Euro Area crisis huge changes in international capital flows occurred associated with a high level of economic uncertainty. While it is evident that 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 core Euro Area countries using gross capital flows. We find that country-specific risk factors seem to play a more important role than global risk factors. Moreover, country-specific uncertainty seems to be more relevant for foreign direct investors.

Keywords: capital flows; uncertainty; Euro Area crisis; sudden stops; retrenchment

JEL Classification: F32, F21, G01

Suggested Citation

Schmidt, Torsten and Zwick, Lina, Uncertainty and Episodes of Extreme Capital Flows in the Euro Area (Dec 7, 2013). Ruhr Economic Paper No. 461, Available at SSRN: https://ssrn.com/abstract=2421260 or http://dx.doi.org/10.2139/ssrn.2421260

Torsten Schmidt (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI) ( email )

45128 Essen
Germany

Lina Zwick

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

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