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Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops

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Abstract

The paper studies mechanisms through which a sudden stop in international credit flows may bring about financial and balance of payments crises. It is shown that these crises can occur even though the current account deficit is fully financed by foreign direct investment. However, equity and long-term bond financing may shield the economy from sudden stop crises. The paper also examines possible factors that could trigger sudden stops, and argues that the greater independence that countries have, as compared to regions of a given country, could help to explain why sudden stop crises are more prevalent and destructive at international than at national levels.

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File URL: http://www.cema.edu.ar/publicaciones/download/volume1/calvo.pdf
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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): I (1998)
Issue (Month): (November)
Pages: 35-54

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Handle: RePEc:cem:jaecon:v:1:y:1998:n:1:p:35-54

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  1. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
  2. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
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  1. The emergence of a two-speed euro zone?
    by Dirk in econoblog101 on 2010-08-13 12:03:22
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  1. Fear of floating in Wikipedia (English)
  2. Sudden stop (economics) in Wikipedia (English)

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