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Financial Diversification and Sudden Stops

Author

Listed:
  • Kevin Cowan L.
  • José De Gregorio R.
  • Alejandro Micco A.
  • Christopher Neilson M.

Abstract

Recent literature on sudden stops analyses the sharp and varied capital account reversals experienced by many emerging market economies. This paper claims that more information can be extracted from the behavior of gross capital flows than from their net results. It emphasizes the fact that, while one economy’s sudden stop can reveal exclusion from the international financial markets, another can be making adjustments to its investment portfolio causing a sudden start, and both produce the same net effect on the capital account. We present a simple model that rationalizes this empirical fact and its relationship with the economy’s financial diversification.

Suggested Citation

  • Kevin Cowan L. & José De Gregorio R. & Alejandro Micco A. & Christopher Neilson M., 2007. "Financial Diversification and Sudden Stops," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(3), pages 45-65, December.
  • Handle: RePEc:chb:bcchec:v:10:y:2007:i:3:p:45-65
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    References listed on IDEAS

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    Cited by:

    1. Alberola, Enrique & Erce, Aitor & Serena, José Maria, 2016. "International reserves and gross capital flows dynamics," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 151-171.
    2. Levan Efremidze & Sungsoo Kim & Ozan Sula & Thomas D. Willett, 2017. "The relationships among capital flow surges, reversals and sudden stops," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 9(4), pages 393-413, November.
    3. Cowan, Kevin & Raddatz, Claudio, 2013. "Sudden stops and financial frictions: Evidence from industry-level data," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 99-128.

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