Program > Papers by speaker > Benhima Kenza

We examine empirically the effect on gross capital flows of two types of expectation-related shocks: "news" (increases in expected future productivity) and "sentiment" (surges in optimism unrelated to future productivity). We find that news shocks lead to a decrease in both gross capital inflows and outflows, while sentiment shocks lead to an increase in both gross inflows and outflows. Both these shocks drive a positive correlation between gross inflows and outflows but only sentiments shocks generate procyclical gross flows. These effects are not driven by global shocks or financial shocks. They are consistent with the existence of asymmetric information between domestic and foreign investors about the country's fundamentals.