This paper analyzes the behavior of international capital flows by foreigners and domestic agents, especially during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile, especially relative to net capital flows. This is because when foreigners invest in a country domestic agents tend to invest abroad and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This is especially true during severe crises and during systemic crises. The evidence can shed light on the nature of shocks driving international capital flows. It seems to favor shocks that affect foreigners and domestic agents asymmetrically -e.g. sovereign risk and asymmetric information-over productivity shocks. JEL Classification Codes: F21, F32

This paper analyzes the behavior of international capital flows by foreigners and domestic agents, especially during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile, especially relative to net capital flows. This is because when foreigners invest in a country domestic agents tend to invest abroad and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This is especially true during severe crises and during systemic crises. The evidence can shed light on the nature of shocks driving international capital flows. It seems to favor shocks that affect foreigners and domestic agents asymmetrically -e.g. sovereign risk and asymmetric information-over productivity shocks. JEL Classification Codes: F21, F32

The coronavirus (COVID-19) pandemic halted economic activity worldwide, hurting firms and pushing many of them toward bankruptcy. This paper discusses four central issues that have emerged in the academic and policy debates related to firm financing during the downturn. First, the economic crisis triggered by the pandemic is radically different from past crises, with important consequences for optimal policy responses. Second, it is important to preserve firms' relationships with key stakeholders (like workers, suppliers, customers, and creditors) to avoid inefficient bankruptcies and long-term detrimental economic effects. Third, firms can benefit from "hibernation," incurring the minimum bare expenses necessary to withstand the pandemic, while using credit if needed to remain alive until the crisis subdues. Fourth, the existing legal and regulatory infrastructure is ill-equipped to deal with an exogenous systemic shock like a pandemic. Financial sector policies can help increase the provision of credit, while posing difficult choices and trade-offs.

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This paper examines the determinants of comovement in stock market returns during the 2007-2008 crisis. Given that the United States (US) was the crisis epicenter, we analyse the factors driving the comovement between US stock market returns and stock market returns in 83 countries. The analysis distinguishes between the period before and after the collapse of Lehman Brothers. The findings indicate that comovement was driven largely by financial linkages. There is also evidence of 'demonstration effects' in the first stage of the crisis, as countries with vulnerable banking and corporate sectors exhibited higher comovement with the US market. Finally, despite a collapse in trade across countries, trade did not seem to play a role in explaining comovement in stock market returns.