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On the role of capital flows – or the lack thereof – in sudden stops

Author

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  • Martial Dupaigne
  • Marc Y. Robert

Abstract

We study the relationship between capital flows and output on a panel of 22 emerging countries, between 1979 and 2001. We contrast this relationship during episodes of sudden stops crises and outside such crises. The issue we investigate is whether the behaviour of capital flows during sudden stops is similar to the regular business cycle phenomenon but at a highly unusual scale, or if it comes under a different regime. We show the existence of a non-linear relationship between capital flows and output. The lack of capital flows is more harmful during sudden stops than during the periods of our sample that have experienced only large drops in net capital inflows, or large depreciations or large recessions.

Suggested Citation

  • Martial Dupaigne & Marc Y. Robert, 2006. "On the role of capital flows – or the lack thereof – in sudden stops," Revue d'économie politique, Dalloz, vol. 116(1), pages 79-90.
  • Handle: RePEc:cai:repdal:redp_161_0079
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    References listed on IDEAS

    as
    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    2. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    3. Roberto Chang & Andrés Velasco, 2000. "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 11-78 National Bureau of Economic Research, Inc.
    4. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 35-54, November.
    5. Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-448, May.
    6. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    7. Enrique G. Mendoza & Guillermo A. Calvo, 2000. "Capital-Markets Crises and Economic Collapse in Emerging Markets: An Informational-Frictions Approach," American Economic Review, American Economic Association, vol. 90(2), pages 59-64, May.
    8. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    9. repec:ebl:ecbull:v:6:y:2003:i:12:p:1-12 is not listed on IDEAS
    10. Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10.
    11. Francois HERMET, 2003. "CURRENCY CRISIS AND BALANCE SHEET CHANNEL EFFECT. The Korean Experience," Economics Bulletin, AccessEcon, vol. 6(12), pages 1-12.
    12. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
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    Keywords

    capital flows; emerging countries; sudden stops;

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