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Sudden stops and currency crises

Author

Listed:
  • Levan Efremidze
  • Samuel M. Schreyer
  • Ozan Sula

Abstract

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.

Suggested Citation

  • Levan Efremidze & Samuel M. Schreyer & Ozan Sula, 2011. "Sudden stops and currency crises," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(4), pages 304-321, November.
  • Handle: RePEc:eme:jfeppp:v:3:y:2011:i:4:p:304-321
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Levan Efremidze & John Rutledge & Thomas D. Willett, 2016. "Capital Flow Surges As Bubbles: Behavioral Finance And Mckinnon’S Over-Borrowing Syndrome Extended," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-27, June.
    2. Seung-Gwan Baek & Chi-Young Song, 2016. "On the Determinants of Surges and Stops in Foreign Loans: An Empirical Investigation," Open Economies Review, Springer, pages 405-445.
    3. Eguren Martin, Fernando, 2016. "Exchange rate regimes and current account adjustment: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 69-93.
    4. Schmidt, Torsten & Zwick, Lina, 2015. "Uncertainty and episodes of extreme capital flows in the Euro Area," Economic Modelling, Elsevier, vol. 48(C), pages 343-356.
    5. Levan Efremidze, 2011. "Sudden stops and currency crises," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(4), pages 304-321, November.
    6. Masyita Crystallin & Levan Efremidze & Sungsoo Kim & Wahyu Nugroho & Ozan Sula & Thomas Willett, 2015. "How Common are Capital Flows Surges? How They are Measured Matters -a Lot," Open Economies Review, Springer, pages 663-682.
    7. William R. Clark, 2012. "Measures of financial openness and interdependence," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(1), pages 58-75, April.
    8. Torsten Schmidt & Lina Zwick, 2013. "Uncertainty and Episodes of Extreme Capital Flows in the Euro Area," Ruhr Economic Papers 0461, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    9. Yanping Zhao & Jakob Haan & Bert Scholtens & Haizhen Yang, 2014. "Sudden Stops and Currency Crashes," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 660-685, September.
    10. repec:zbw:rwirep:0461 is not listed on IDEAS

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