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A New Taxonomy of Sudden Stops: Which Sudden Stops Should Countries Be Most Concerned About?

Author

Listed:
  • Pilar Tavella
  • Mathieu Pedemonte
  • Andrew Powell
  • Eduardo A. Cavallo

Abstract

This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is tracked over time and the type of Sudden Stop related to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are more disruptive than those where surges in (only) Gross Outflows dominate. The paper further discusses the mechanisms that might result in Sudden Stops in Gross Flows that are not Sudden Stops in Net Flows, such that shifts in financial assets or liabilities do not require a sharp current account adjustment. Still, it is found that Sudden Stops in Gross Inflows that do not provoke a sharp contraction in Net Flows may also be disruptive, including Sudden Stops that are driven by "other flows" -which include banking flows. The results suggest new avenues for research and future policy analysis.

Suggested Citation

  • Pilar Tavella & Mathieu Pedemonte & Andrew Powell & Eduardo A. Cavallo, 2013. "A New Taxonomy of Sudden Stops: Which Sudden Stops Should Countries Be Most Concerned About?," IDB Publications (Working Papers) 4606, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:4606
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Crises & Structural Adjustement; Capital flows; Financial Sector; Investment; IDB-WP-430;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F30 - International Economics - - International Finance - - - General

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