Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5053997 | Economic Modelling | 2015 | 14 Pages |
â¢Foreign and domestic investors withdraw money from abroad during times of crises.â¢Country-specific uncertainty is important for indicating large capital flow periods.â¢Uncertainty is more relevant in stressed than in non-stressed Euro Area countries.â¢The results reveal both a home bias and a safe haven effect.
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.