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Sudden Flight and True Sudden Stops

  • Alexander D. Rothenberg
  • Francis E. Warnock

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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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 19 (2011)
Issue (Month): 3 (08)
Pages: 509-524

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Handle: RePEc:bla:reviec:v:19:y:2011:i:3:p:509-524
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  1. Auguste, Sebastian & Dominguez, Kathryn M.E. & Kamil, Herman & Tesar, Linda L., 2006. "Cross-border trading as a mechanism for implicit capital flight: ADRs and the Argentine crisis," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1259-1295, October.
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