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Trade, Gravity and Sudden Stops: On How Commercial Trade Can Increase the Stability of Capital Flows

  • Eduardo A. Cavallo

Financial stability is an important policy objective, since crises are associated with large economic, social and political costs. This paper contributes to the discussion by providing new theoretical and empirical evidence on the causal connection between lack of exposure to commercial trade and proclivity to sudden stops. On the theoretical front, the paper shows how exposure to trade raises the creditworthiness of countries and reduces the probability of sudden stops.

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Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 6839.

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Date of creation: Dec 2006
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Handle: RePEc:idb:brikps:6839
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