The Simple Economics of Sudden Stops
نویسندگان
چکیده
The paper studies mechanisms through which a sudden stop in international credit flows may bring about financial and balance of payments crises. It is shown that these crises can occur even though the current account deficit is fully financed by foreign direct investment. However, equity and long-term bond financing may shield the economy from sudden stop crises. The paper also examines possible factors that could trigger sudden stops, and argues that the greater independence that countries have, as compared to regions of a given country, could help to explain why sudden stop crises are more prevalent and destructive at international than at national levels.
منابع مشابه
How do Sudden Stops of Capital Flows Affect Currency Crises in Asia?
Sudden stops can be characterized by sharp reversals in capital inflows, large declines in output, and steep collapses in real asset prices (Mendoza and Smith, 2009). In almost all recent crises, capital account reversals amounting to more than 10% of an afflicted country’s GDP have occurred (Calvo and Reinhart, 1999 and Nabli, 1999). More specifically, reversals in capital flows to emergin...
متن کاملCAPITAL FLOWS AND CAPITAL-MARKET CRISES: The Simple Economics of Sudden Stops
ing from errors and omissions, the following is an accounting identity in a non-monetary economy:
متن کاملDo Improvements in Government Quality Necessarily Reduce the Incidence of Sudden Stops?
Sudden stops, or large reversals in capital inflows, have been linked to a number of financial crises in emerging market countries. Given their potentially devastating consequences, academics and policymakers have placed great emphasis on analyzing the causes of financial vulnerability. This task has become even more important with increasing financial globalization. A large literature has deve...
متن کاملDo Improvements in Government Quality Necessarily Reduce the Incidence of Costly Sudden Stops?
Sudden stops have been linked to a number of financial crises in emerging market countries. While a large literature has developed emphasizing the importance of institutions and governance in reducing economic volatility, this paper finds that the effect of government quality on the incidence of sudden stops is non-linear. Initial improvements in governance actually increase the incidence of co...
متن کاملThe Relationships among Capital Flow Surges, Reversals and Sudden Stops
We contribute to the growing literature on the behavior of capital flow surges and their relationships with sudden stops and capital flow reversals. We suggest a definition of true sudden stops based on gross foreign flows that is a subset of net capital flow reversals. We find that a majority of surges end in reversals of some type and this percentage is only slightly over half for surges in n...
متن کامل