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Sudden stops in emerging markets: How to minimize their impact on GDP?

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  • José Osler Alzate Mahecha

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Abstract

Since the beginning of the 1990s, capital flows to emerging markets soared to historically high levels. However, many countries suffered sudden stops in these capital flows. These sudden stops affected simultaneously several countries with different economic characteristics. Taking into account the sudden stop episodes that occurred after 1990, this work attempts to analyze in an empirical manner which characteristics and policies helped reduce the cost of the different crises on GDP. The countries with a lower level of external debt had a less costly crisis. Additionally, a countercyclical fiscal policy and the sale of international reserves to counter the domestic currency´s depreciation also helped reduce the cost of the sudden stops on output. On the other hand, the level of exports and the changes in the central bank´s interest rate did not have statistically significant effects.

Suggested Citation

  • José Osler Alzate Mahecha, 2013. "Sudden stops in emerging markets: How to minimize their impact on GDP?," DOCUMENTOS CEDE 010547, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:010547
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2013-06.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    sudden stops; emerging markets; crisis costs on GDP; countercyclical policy;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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