Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration

43 Pages Posted: 25 Apr 2011

See all articles by Guillermo A. Calvo

Guillermo A. Calvo

Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department

Luis Fernando Mejía

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: July 2008

Abstract

Using a sample of 110 developed and developing countries for the period 1990-2004, this paper analyzes the characteristics of systemic sudden stops (3S) in capital flows and the relevance of balance-sheet effects in the likelihood of their materialization. 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 are claimed to be key determinants of the probability of 3S, producing a balancesheet effect with non-linear impacts on the probability of 3S. While financial integration is up to a point associated with a higher likelihood of 3S, beyond that point financial integration is associated with a lower likelihood of 3S.

Suggested Citation

Calvo, Guillermo A. and Izquierdo, Alejandro and Mejía, Luis Fernando, Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration (July 2008). IDB Working Paper No. 537, Available at SSRN: https://ssrn.com/abstract=1820925 or http://dx.doi.org/10.2139/ssrn.1820925

Guillermo A. Calvo (Contact Author)

Columbia University - School of International & Public Affairs (SIPA) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Luis Fernando Mejía

affiliation not provided to SSRN

No Address Available

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