Current Account Reversals and Currency Crises:  Empirical Regularities

Milesi-Ferrett, Gian Maria; Razin, Assaf

doi:10.3386/w6620

Cited by 234 publications

(236 citation statements)

References 30 publications

(10 reference statements)

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“…Becker and Mauro (2006) also identify episodes of output collapse ('output drops') and empirically associate those with the occurrence of sudden stops. Bordo et al (2001), MilesiFerretti andRazin (2000) and Edwards (2004) focus on the determinants of the costs of crises, emphasizing the effect of structural factors such as trade openness, the size of the preceding current account deficit and the exchange rate regime.…”

Section: Why Should a Sudden Top Cause A Collapse In Output?mentioning

confidence: 99%

Fiscal and monetary policies and the cost of sudden stops

Hutchison¹,

Noy²,

Wang³

2010

Journal of International Money and Finance

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This article investigates the effects of macroeconomic policy (monetary and fiscal) on output growth during financial crises characterized by a "sudden stop" in net capital inflows in developing and emerging market economies. We investigate 83 sudden stop crises in 77 countries over 1982-2003 using a baseline empirical model to control for the various determinants of output losses during sudden stop crises. Extending the baseline model to account for policies--contractionary as well as expansionary--we measure the marginal effects of policy on output losses. Simple descriptive statistics indicate no apparent correlation between the costs of financial crises and the economic policies pursed at the time. Once controlling for various pre-conditions and other factors, however, we find that monetary and fiscal tightening at the time of a sudden stop crisis significantly worsens output losses. JEL: E52, E62, F32, F43, O16

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Section: Why Should a Sudden Top Cause A Collapse In Output?mentioning

confidence: 99%

Fiscal and monetary policies and the cost of sudden stops

Hutchison¹,

Noy²,

Wang³

2010

Journal of International Money and Finance

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“…Recent empirical literature has focused on alternative measures of crisis, whether currency crises (Frankel and Rose (1996), 10 Kaminsky and Reinhart (1999), 11 Edwards (2001), 12 Arteta (2003), Razin and Rubinstein (2004) 13 ) or current account reversals (Milesi-Ferretti and Razin (2000), Edwards (2003)). However, to the extent that many of the recent crises were originated by credit shocks in international markets, as argued in Calvo (1999), the measure of crisis we want to consider in this case is more closely linked to large and unexpected capital account movements rather than to measures that focus on large nominal currency fluctuations or current account reversals (along these lines, Edwards (2004) Kaminsky and Reinhart (1999) implicitly introduce a link between current account performance and currency crises by incorporating the growth rate of imports and exports in their analysis.…”

Section: Sudden Stops: Definition and Characterizationmentioning

confidence: 99%

Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration

2008

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Using a sample of 110 developed and developing countries for the period 1990-2004 we analyze the empirical characteristics of systemic sudden stops (3S) in capital flows --understood as large and largely unexpected capital account contractions that occur in periods of systemic turmoil --and the relevance of balance sheet effects in the likelihood of their materialization. We conjecture that large real exchange rate (RER) fluctuations come hand in hand with 3S. 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, denoted Domestic Liability Dollarization, DLD, are claimed to be key determinants of the probability of 3S, conforming a balance-sheet effect that impacts on the probability of 3S in non-linear fashion. Regarding financial integration, the larger is the latter, the larger is likely to be the probability of Sudden Stop; however, beyond a critical point the relationship gets a sign reversion.

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“…Perhaps one of the oldest historical reasons that can lead to problems in individual banking institution that is its susceptibility to liquidity problems 21 . This is mainly due to the fact that banks usually finance their long-term active operations with deposits, i.e.…”

Section: Causes Of Banking Crisesmentioning

confidence: 99%

Causes of Banking Crises in Modern World

Bojinov

2014

SSRN Journal

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The global financial crisis has highlighted the issue of the role and importance of the banking sector in a modern economy. It showed that the problems in the sector is the sector rarely, but rather transferred to the whole economy, impacting negatively on access to credit, payment mediation and smooth functioning of financial markets. This article is a critical analysis of the main reasons leading to further problems in the banking sector and the occurrence of a banking crisis.

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Current Account Reversals and Currency Crises: Empirical Regularities

Cited by 234 publications

References 30 publications

Fiscal and monetary policies and the cost of sudden stops

Fiscal and monetary policies and the cost of sudden stops

Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration

Causes of Banking Crises in Modern World

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