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The Persistence of Capital Account Crises

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  • Mauro Mecagni
  • Ruben Atoyan
  • David Hofman
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    Abstract

    This study contributes to the literature on capital account crises in two ways. First, our analysis of crisis episodes between 1994 and 2002 establishes a clear relationship between the persistence of crises, their complexity, and the intensity of movement of key macroeconomic variables. Second, we provide a systematic examination of the determinants of crisis duration. Our econometric analysis suggests that initial conditions and the external environment plays a key role in determining crisis persistence. The policy response also matters, but cannot offset a record of poor past policies. Overall, the results underscore the critical importance of crisis prevention efforts.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/103.

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    Length: 28
    Date of creation: 01 May 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/103

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    Related research

    Keywords: Capital controls; Capital outflows; Data analysis; Economic models; Exchange rate regimes; External sector; capital account crises; capital account; capital flows; private capital flows; current account; current account balance; capital account crisis; crisis prevention; private capital; capital outflow; net capital flows; current account deficit; capital markets; government bonds; current account deficits; capital inflows; market assets; loss of confidence; balance of payments; swift; net capital; current account reversals; official flows; current account adjustment; capital flow;

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    1. Guillermo A. Calvo, 2008. "Crises in Emerging Markets Economies: A Global Perspective," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmid (ed.), Current Account and External Financing, edition 1, volume 12, chapter 3, pages 085-115 Central Bank of Chile.
    2. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," Research Department Publications, Inter-American Development Bank, Research Department 4474, Inter-American Development Bank, Research Department.
    3. Marcos Chamon & Paolo Manasse & Alessandro Prati, 2007. "Can We Predict the Next Capital Account Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 270-305, June.
    4. Michael Hutchison & Ilan Noy (Neuberger), 2002. "Sudden stops and the Mexican wave: currency crises, capital flow reversals and output loss in emerging markets," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 2002-03, Federal Reserve Bank of San Francisco.
    5. Sebastian Edwards, 2005. "Capital Controls, Sudden Stops and Current Account Reversals," NBER Working Papers 11170, National Bureau of Economic Research, Inc.
    6. Demirguc-Kunt, Asli & Detragiache, Enrica, 2005. "Cross-country empirical studies of systemic bank distress : a survey," Policy Research Working Paper Series 3719, The World Bank.
    7. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
    8. Eduardo A. Cavallo & Jeffrey Frankel, 2007. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Research Department Publications, Inter-American Development Bank, Research Department 4544, Inter-American Development Bank, Research Department.
    9. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R. Masson, 1998. "Exit Strategies," IMF Occasional Papers 168, International Monetary Fund.
    10. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 544, Board of Governors of the Federal Reserve System (U.S.).
    11. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," NBER Working Papers 12235, National Bureau of Economic Research, Inc.
    12. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," IDB Publications 6516, Inter-American Development Bank.
    13. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
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