Sudden stops and currency crises

Abstract

Purpose -The purpose of this paper is to examine empirical characteristics of two commonly mentioned expressions of international financial crisis, "sudden stops" and currency crises. Design/methodology/approach -Sudden stop and currency crisis events are identified and empirical regularities among them are analyzed based on the annual data of 25 emerging market countries from 1990 to 2003. Findings -Puzzlingly, these two seemingly close expressions of crises overlap less than 50 percent of the time and sudden stops more frequently precede than follow currency crises. Also the two different sudden stop measures are not strongly correlated with each other. Research limitations/implications -This shows that it can make a great deal of difference what measure is used and suggests that studies in this area should be sure to check the robustness of their results to different measures. Practical implications -The authors think that the proper analysis should focus on how to use these different measures to understand the nature of the crises. Thus, sudden stop and currency crisis measures should be used as complements, rather than substitutes. Social implications -The alarming frequency of the emerging market crises during the last three decades has motivated a large volume of theoretical and empirical literature on the subject. The paper's results advance understanding of these events. Originality/value -A large body of studies on currency crises coexists with a growing literature on sudden stops yet a majority of the studies that investigate either one of these phenomena do not mention the other. The paper adds value by investigating empirical relationships between them.

Uncertainty and Episodes of Extreme Capital Flows in the Euro Area

“…the difference between capital inflows and outflows (Merler and Pisani-Ferry 2012, Efremidze et al 2011, Calvo et al 2004, Agosin and Huaita 2011. Although this variable is of high interest from the macroeconomic perspective, there are several arguments for using gross capital flows 6 , i.e.…”

The relationships among capital flow surges, reversals and sudden stops

“…A full list of the countries is given in appendix A. 7 See Efremidze et al (2011) and Zhao et al (2014). 8 Studies used several additional criterions for measuring capital flow reversals and sudden stops.…”

“…A number of additional methods have also been used in the literature. For a recent survey see Efremidze et al (2011).…”

Capital Flow Reversals, Sudden Stops, and International Reserve Adequacy: Further Evidence From the Global Financial Crisis

“…The paper is organized as follows: In Section 2, we discuss some of the issues related to the evaluation of reserve adequacy and layout our analytic framework. As identified in Efremidze et al (2011) there is to our surprise low correlations among many of the different measures of capital flow reversals that have been used in the literature as well as between these and measures of currency crises. Thus in Section 3 we discuss some of the major methodological issues relevant for these measures.…”