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Sudden stops in emerging markets: How to minimize their impact on GDP?

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  • José Osler Alzate Mahecha

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    Abstract

    Since the beginning of the 1990s, capital flows to emerging markets soared to historically high levels. However, many countries suffered sudden stops in these capital flows. These sudden stops affected simultaneously several countries with different economic characteristics. Taking into account the sudden stop episodes that occurred after 1990, this work attempts to analyze in an empirical manner which characteristics and policies helped reduce the cost of the different crises on GDP. The countries with a lower level of external debt had a less costly crisis. Additionally, a countercyclical fiscal policy and the sale of international reserves to counter the domestic currency´s depreciation also helped reduce the cost of the sudden stops on output. On the other hand, the level of exports and the changes in the central bank´s interest rate did not have statistically significant effects.

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    Bibliographic Info

    Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 010547.

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    Length: 36
    Date of creation: 27 Jan 2013
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    Handle: RePEc:col:000089:010547

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    Keywords: sudden stops; emerging markets; crisis costs on GDP; countercyclical policy;

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    1. Frankel, Jeffrey A & Okongwu, Chudozie, 1996. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(1), pages 1-23, January.
    2. Miguel Urrutia Montoya & Olga Marcela Namen León, 2011. "Historia del Crédito Hipotecario en Colombia," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 008729, UNIVERSIDAD DE LOS ANDES-CEDE.
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    7. Ortiz, Alberto & Pablo, Ottonello & Sturzenegger, Federico & Talvi, Ernesto, 2007. "Monetary and Fiscal Policies in a Sudden Stop: Is Tighter Brighter?," Working Paper Series rwp07-057, Harvard University, John F. Kennedy School of Government.
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    12. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals, and Sudden Stops," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 1-49, June.
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    14. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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