Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration
47 Pages Posted: 29 May 2008 Last revised: 30 Oct 2022
There are 2 versions of this paper
Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration
Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration
Date Written: May 2008
Abstract
Using a sample of 110 developed and developing countries for the period 1990-2004 we analyze the empirical characteristics of systemic sudden stops (3S) in capital flows --understood as large and largely unexpected capital account contractions that occur in periods of systemic turmoil -- and the relevance of balance sheet effects in the likelihood of their materialization. We conjecture that large real exchange rate (RER) fluctuations come hand in hand with 3S. A small supply of tradable goods relative to their domestic absorption -- a proxy for potential changes in the real exchange rate -- and large foreign-exchange denominated debts towards the domestic banking system, denoted Domestic Liability Dollarization, DLD, are claimed to be key determinants of the probability of 3S, conforming a balance-sheet effect that impacts on the probability of 3S in non-linear fashion. Regarding financial integration, the larger is the latter, the larger is likely to be the probability of Sudden Stop; however, beyond a critical point the relationship gets a sign reversion.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
International and Domestic Collateral Constraints in a Model of Emerging Market Crises
-
International and Domestic Collateral Constraints in a Model of Emerging Market Crises
-
On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects
By Guillermo A. Calvo, Alejandro Izquierdo, ...
-
Currency Crises and Monetary Policy in an Economy with Credit Constraints
By Philippe Aghion, Abhijit V. Banerjee, ...
-
On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects
By Guillermo A. Calvo, Alejandro Izquierdo, ...
-
Current Account Reversals and Currency Crises: Empirical Regularities
-
Balance Sheets and Exchange Rate Policy
By Luis Felipe Cespedes, Roberto Chang, ...
-
Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons
By Guillermo A. Calvo, Alejandro Izquierdo, ...
-
Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons
By Alejandro Izquierdo, Ernesto Talvi, ...
-
Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops