Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93084
Authors: 
Herrmann, Sabine
Kleinert, Jörn
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 06/2014
Abstract: 
This paper examines the Lucas Paradox and the Allocation Puzzle of international capital flows referring to a panel data set of EMU countries and major industrialized and emerging economies. Overall, the results do not provide evidence in favour of the Lucas Paradox and the Allocation Puzzle. Rather, in line with neoclassical expectations, net capital flows are allocated according to income and growth differentials. The 'downhill' flow of capital from rich to poor economies was particularly pronounced in intra-euro area capital flows and after the introduction of the common currency. If we control for the fact that the assumptions of the neoclassical model are not perfectly given in emerging markets, the Lucas Paradox and the Allocation Puzzle can be dismissed for these countries too. However, in periods of financial stress, the neoclassical behaviour of financial flows is to some extent dampened.
Subjects: 
Financial integration
International Capital Flows
European Monetary Union
JEL: 
E22
F21
F36
O16
O57
ISBN: 
978-3-95729-019-9
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.