A New Taxonomy of Sudden Stops: Which Sudden Stops Should Countries Be Most Concerned About?

52 Pages Posted: 15 Dec 2013

See all articles by Eduardo A. Cavallo

Eduardo A. Cavallo

Inter-American Development Bank (IDB) - Research Department

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Mathieu Pedemonte

Inter-American Development Bank (IDB)

Pilar Tavella

Inter-American Development Bank (IDB)

Date Written: August 2013

Abstract

This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is tracked over time and the type of Sudden Stop related to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are more disruptive than those where surges in (only) Gross Outflows dominate. The paper further discusses the mechanisms that might result in Sudden Stops in Gross Flows that are not Sudden Stops in Net Flows, such that shifts in financial assets or liabilities do not require a sharp current account adjustment. Still, it is found that Sudden Stops in Gross Inflows that do not provoke a sharp contraction in Net Flows may also be disruptive, including Sudden Stops that are driven by “other flows” - which include banking flows. The results suggest new avenues for research and future policy analysis.

JEL Classification: F30, F32, F40

Suggested Citation

Cavallo, Eduardo A. and Powell, Andrew P. and Powell, Andrew P. and Pedemonte, Mathieu and Tavella, Pilar, A New Taxonomy of Sudden Stops: Which Sudden Stops Should Countries Be Most Concerned About? (August 2013). IDB Working Paper No. IDB-WP-430, Available at SSRN: https://ssrn.com/abstract=2367696 or http://dx.doi.org/10.2139/ssrn.2367696

Eduardo A. Cavallo (Contact Author)

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

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

Andrew P. Powell

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina
+5411 4787-9349 (Phone)
+5411 4783-3220 (Fax)

Harvard University - Center for International Development (CID) ( email )

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79 JFK Street
Cambridge, MA 02138
United States

Mathieu Pedemonte

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

Pilar Tavella

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

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