Sudden Flight and True Sudden Stops

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Sudden Flight and True Sudden Stops

Author Info

Alexander D. Rothenberg
Francis E. Warnock

Abstract

We extend the sudden stops literature by allowing crisis episodes to be caused by either the retreat of global investors, as is assumed but not shown in the extant literature, or the sudden flight of local investors. We find that almost half of the previously defined sudden stops are actually episodes of sudden flight. Compared to sudden flight, true sudden stops are bunched and are associated with greater slowdowns in economic activity and sharper currency depreciations. We show that the empirical regularities of sudden flight and true sudden stops are consistent with theoretical models that incorporate gross capital flows and information asymmetries.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp187.

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Date of creation: 05 Jan 2007
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Handle: RePEc:iis:dispap:iiisdp187

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