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Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration

Author

Listed:
  • Calvo, Guillermo A.
  • Izquierdo, Alejandro
  • Mejía, Luis Fernando

Abstract

Using a sample of 110 developed and developing countries for the period 1990-2004, this paper analyzes the characteristics of systemic sudden stops (3S) in capital flows and the relevance of balance-sheet effects in the likelihood of their materialization. A small supply of tradable goods relative to their domestic absorption?a proxy for potential changes in the real exchange rate?and large foreign-exchange denominated debts towards the domestic banking system are claimed to be key determinants of the probability of 3S, producing a balancesheet effect with non-linear impacts on the probability of 3S. While financial integration is up to a point associated with a higher likelihood of 3S, beyond that point financial integration is associated with a lower likelihood of 3S.

Suggested Citation

  • Calvo, Guillermo A. & Izquierdo, Alejandro & Mejía, Luis Fernando, 2011. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," IDB Publications (Working Papers) 1628, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:1628
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    References listed on IDEAS

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    More about this item

    Keywords

    WP-637;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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