Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile

36 Pages Posted: 22 Mar 2005 Last revised: 24 Jun 2010

See all articles by Guillermo A. Calvo

Guillermo A. Calvo

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

Ernesto Talvi

Centro de Estudios de la Realidad Economica y Social (CERES)

Date Written: February 2005

Abstract

This paper shows that the Russian 1998 crisis had a big impact on capital flows to Emerging Market Economies, EMs, especially in Latin America, and that the impact of the Russian shock differs quite markedly across EMs. To illustrate this statement, we compare the polar cases of Chile and Argentina. While Chile exhibited a significant economic slowdown after August 1998, it did not suffer the excruciating collapse suffered by Argentina, where even the payments system came to a full stop. We attribute their difference to the fact that Chile is more open to trade than Argentina, and that it appears to suffer much less from balance-sheet currency-denomination mismatch that was rampant in Argentina before the 2002 crisis (due to large domestic liability dollarization). The paper is essentially descriptive but is in line with and, thus, complements econometric studies like Calvo, Izquierdo and Mejia (NBER Working Paper 10520). The final section addresses policy issues in light of the paper's findings and conjectures.

Suggested Citation

Calvo, Guillermo A. and Talvi, Ernesto, Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile (February 2005). NBER Working Paper No. w11153. Available at SSRN: https://ssrn.com/abstract=669452

Guillermo A. Calvo (Contact Author)

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

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ernesto Talvi

Centro de Estudios de la Realidad Economica y Social (CERES) ( email )

Antonio Costa 3476
11300 Montevideo
Uruguay
(5982)628-7703 / 628 76 44 (Phone)
(5982)622-0526 (Fax)

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