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

  • José Osler Alzate Mahecha


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    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.

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    Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 010547.

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    Length: 36
    Date of creation: 27 Jan 2013
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    Handle: RePEc:col:000089:010547
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    1. Guillermo Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
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    8. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
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    11. Ortiz, Alberto & Pablo, Ottonello & Sturzenegger, Federico & Talvi, Ernesto, 2007. "Monetary and Fiscal Policies in a Sudden Stop: Is Tighter Brighter?," Working Paper Series rwp07-057, Harvard University, John F. Kennedy School of Government.
    12. Ferhan Salman & Mali Chivakul & Ricardo Llaudes, 2010. "The Impact of the Great Recession on Emerging Markets," IMF Working Papers 10/237, International Monetary Fund.
    13. Miguel Urrutia & Olga Marcela Namen, 2012. "Historia del crédito hipotecario en Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 30(67), pages 282-306.
    14. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    15. Abdul Abiad & Petya Koeva Brooks & Irina Tytell & Daniel Leigh & Ravi Balakrishnan, 2009. "What’s the Damage? Medium-term Output Dynamics After Banking Crises," IMF Working Papers 09/245, International Monetary Fund.
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