On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects

Abstract

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Patterns of Current Account Adjustment—Insights from Past Experience

“…Several authors have sought to bridge the literature on current account adjustments with that on sudden stops. Sudden stops refer to abrupt and large reductions in capital inflows and have been studied inter alia by Calvo et al (2004) and Calvo and Talvi (2006). Edwards (2005c) finds that sudden stops, in the presence of large current account deficits, increase the likelihood of a current account adjustment.…”

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

“…Moreover, as it will become clear later on, our measure of dollarization is different. 26 A previous version of our study (Calvo, Izquierdo and Mejia (2004)) was the first to introduce the concept of DLD in determining the probability of a crisis. Here we conduct a much more comprehensive analysis by including a larger set of 110 countries for which DLD data is now available.…”

“…For example, a region like East Asia, where 26 Our sample of countries is also different and much larger than that in Arteta (2003). 27 In a related study, Cavallo and Frankel (2004), using a similar definition of Sudden Stop to that in Calvo, Izquierdo and Mejia (2004), also introduce measures of dollarization more akin to those in Arteta (2003). These alternative measures provide mixed results in terms of their contribution to the likelihood of a Sudden Stop.…”

Financial Development: Maturing and Emerging Policy Issues

“…Mismatches were driving factors in many crises, including the East Asian financial crises in the second half of the 1990s and the crises in Ecuador (1999) and Argentina (2001). Subsequent work (Calvo, Izquierdo, and Mejia 2004) found empirical evidence suggesting that liability dollarization increases the probability of a sudden stop in capital inflows. Argentina illustrated the deep drawbacks of a rigid currency pre-commitment, including the troublesome feature that such pre-commitments exacerbate currency mismatches (de la Torre, Levy Yeyati, and Schmukler 2003).…”