Financial Diversification, Sudden Stops, and Sudden Starts
In: Current Account and External Financing
The recent literature on sudden stops is based on the fact that many emerging market economies experience recurrent and sharp capital account reversals. In this paper we argue, as some recent research has started to emphasize, that more information can be obtained by looking at gross rather than net flows. Economies may be curtailed from international financial markets, resulting in a sudden stop of inflows, but others may be experiencing portfolio shifts that cause sudden start of capital outflows. By looking at gross flows, and comparing emerging markets (EMEs) with developed economies (DEs) we indeed show that there is a variety of experiences that cannot be lumped together. In particular, sudden stop of inflows are as common in DEs as in EMEs, but a key difference is that in the former outflows and inflows are negatively correlated, which dampen the reversal of net flows. We present a model of financial diversification to interpret these results which is consistent with most evidence we report here. l II) could be helpful on this task.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Current Account and External Financing, , chapter 5, pages 159-194, 2008.|
|This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v12c05pp159-194.|
|Contact details of provider:|| Postal: |
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Velasco, A. & Chang, R., 1998.
"The Asian Liquidity Crisis,"
98-27, C.V. Starr Center for Applied Economics, New York University.
- Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
- Mark Aguiar & Gita Gopinath, 2007.
"Emerging Market Business Cycles: The Cycle Is the Trend,"
Journal of Political Economy,
University of Chicago Press, vol. 115, pages 69-102.
- Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
- Mark Aguiar & Gita Gopinath, 2004. "Emerging Market Business Cycles: The Cycle is the Trend," NBER Working Papers 10734, National Bureau of Economic Research, Inc.
- Alicia Garcia-Herrero & Alvaro Ortiz, 2006. "The Role of Global Risk Aversion in Explaining Sovereign Spreads," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, August.
When requesting a correction, please mention this item's handle: RePEc:chb:bcchsb:v12c05pp159-194. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda)
If references are entirely missing, you can add them using this form.