The financial crises of the last three decades have spurred a very large interest on international capital flows. Although most of the work in the topic has concentrated on the behavior of net capital flows, much less is known about the behavior of gross capital flows (the difference between capital inflows by foreigners and capital outflows by domestic agents).
The overwhelming focus on net flows represents a serious shortcoming because gross flow are much larger and much more volatile than net flows, and their size and volatility have been growing substantially faster, as we discuss in a recently published paper and Vox column (Broner et al., 2013a and b).
It is time to shift the attention from net capital flows to gross capital flows.
- Financial Sector