On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects

Calvo, Guillermo A.; Izquierdo, Alejandro; Mejía, Luis Fernando

dc.creator	Calvo, Guillermo A.
dc.creator	Izquierdo, Alejandro
dc.creator	Mejía, Luis Fernando
dc.date	2011-02-04T21:23:16Z
dc.date	2011-02-04T21:23:16Z
dc.date	2004-07-01
dc.date	2004-07-01
dc.date	2014-08-29T09:18:57Z
dc.date.accessioned	2014-09-08T23:27:27Z
dc.date.available	2014-09-08T23:27:27Z
dc.date.issued	2014-09-08
dc.identifier	http://www.iadb.org/en/publications/publication-detail,7101.html?id=6304
dc.identifier.uri	https://saber.ucab.edu.ve/xmlui/handle/123456789/15680
dc.description	Using a sample of 32 developed and developing countries we analyze the empirical characteristics of Sudden Stops in capital flows and the relevance of balance-sheet effects in the likelihood of their occurrence. We find that large real exchange rate (RER) fluctuations accompanied by Sudden Stops are basically an emerging market (EM) phenomenon. Sudden Stops seem to come in bunches, grouping together countries that are different in many respects. However, countries are similar in that they remain vulnerable to large RER fluctuations. This may be the case because countries are forced to make large adjustments in the absorption of tradable goods, and/or because the size of dollar liabilities in the banking system (i.e., domestic liability dollarization, or DLD) is large. Openness, understood as a large supply of tradable goods that reduces leverage over the current account deficit, in combination with DLD, is a key determinant of the probability of Sudden Stops. The relationship between Openness and DLD in the determination of the probability of Sudden Stops is highly non-linear, implying that the interaction of high current account leverage and high dollarization may be a dangerous cocktail.
dc.format	ACROBAT
dc.language	en
dc.relation	IDB Working Paper Series
dc.subject	Setor Financeiro
dc.subject	Financial Sector
dc.subject	Sector financiero
dc.subject	Economia
dc.subject	Economics
dc.subject	Economía
dc.subject	WP-509
dc.title	On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects
dc.type	Working Papers