The Mother of All Sudden Stops: Capital Flows and Reversals in Europe, 1919-32

Abstract

We present new data documenting European capital issues in major financial centers from 1919 to 1932. Push factors (conditions in international capital markets) perform better than pull factors (conditions in the borrowing countries) in explaining the surge and reversal in capital flows. In particular, the sharp increase in stock market volatility in the major financial centers at the end of the 1920s figured importantly in the decline in foreign lending. We draw parallels with Europe today.

Currency Regimes, Capital Flows, and Crises

“…Indeed, that is exactly what Accominotti and Eichengreen (2013) do in drawing comparisons between the current European crisis and Europe's difficulties in the late 1920s and early 1930s, which they dub "the mother of all sudden stops. "…”

The Hungarian twin crisis of 1931

“…Accominotti and Eichengreen, ‘Mother of all sudden stops’, pp. 469–92; Eichengreen, Golden fetters , p. 226; Tomka, A magyarországi pénzintézetek , pp.…”

International banking and transmission of the 1931 financial crisis

“…Ritschl, Deutschlands Krise ; idem, ‘German transfer problem’; Accominotti and Eichengreen, ‘Sudden stops’.…”

“…Feinstein and Watson, ‘International capital flows’; Feinstein, Temin, and Toniolo, World economy , ch. 5; Accominotti and Eichengreen, ‘Sudden stops’.…”