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

Listed author(s):
  • Eduardo A. Cavallo

    ()

  • Andrew Powell

    ()

  • Mathieu Pedemonte
  • Pilar Tavella

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.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number IDB-WP-430.

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Date of creation: Aug 2013
Handle: RePEc:idb:wpaper:idb-wp-430
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