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Sudden stops and currency crises

  • Levan Efremidze
  • Samuel M. Schreyer
  • Ozan Sula

Purpose – The purpose of this paper is to examine empirical characteristics of two commonly mentioned expressions of international financial crisis, “sudden stops” and currency crises. Design/methodology/approach – Sudden stop and currency crisis events are identified and empirical regularities among them are analyzed based on the annual data of 25 emerging market countries from 1990 to 2003. Findings – Puzzlingly, these two seemingly close expressions of crises overlap less than 50 percent of the time and sudden stops more frequently precede than follow currency crises. Also the two different sudden stop measures are not strongly correlated with each other. Research limitations/implications – This shows that it can make a great deal of difference what measure is used and suggests that studies in this area should be sure to check the robustness of their results to different measures. Practical implications – The authors think that the proper analysis should focus on how to use these different measures to understand the nature of the crises. Thus, sudden stop and currency crisis measures should be used as complements, rather than substitutes. Social implications – The alarming frequency of the emerging market crises during the last three decades has motivated a large volume of theoretical and empirical literature on the subject. The paper's results advance understanding of these events. Originality/value – A large body of studies on currency crises coexists with a growing literature on sudden stops yet a majority of the studies that investigate either one of these phenomena do not mention the other. The paper adds value by investigating empirical relationships between them.

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Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 3 (2011)
Issue (Month): 4 (November)
Pages: 304-321

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Handle: RePEc:eme:jfeppp:v:3:y:2011:i:4:p:304-321
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  1. Honig, Adam, 2008. "Do improvements in government quality necessarily reduce the incidence of costly sudden stops?," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 360-373, March.
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