Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration
Using a sample of 110 developed and developing countries for the period 1990-2004, this paper analyzes the characteristics of systemic sudden stops (3S) in capital flows and the relevance of balance-sheet effects in the likelihood of their materialization. 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 are claimed to be key determinants of the probability of 3S, producing a balancesheet effect with non-linear impacts on the probability of 3S. While financial integration is up to a point associated with a higher likelihood of 3S, beyond that point financial integration is associated with a lower likelihood of 3S.
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Format: | Working Papers biblioteca |
Language: | English |
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Inter-American Development Bank
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Subjects: | Financial Crisis and Structural Adjustement, Financial Sector, F31 - Foreign Exchange, F32 - Current Account Adjustment • Short-Term Capital Movements, F34 - International Lending and Debt Problems, F41 - Open Economy Macroeconomics, WP-637, |
Online Access: | http://dx.doi.org/10.18235/0010895 https://publications.iadb.org/en/systemic-sudden-stops-relevance-balance-sheet-effects-and-financial-integration |
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Summary: | Using a sample of 110 developed and developing countries for the period 1990-2004, this paper analyzes the characteristics of systemic sudden stops (3S) in capital flows and the relevance of balance-sheet effects in the likelihood of their materialization. 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 are claimed to be key determinants of the probability of 3S, producing a balancesheet effect with non-linear impacts on the probability of 3S. While financial integration is up to a point associated with a higher likelihood of 3S, beyond that point financial integration is associated with a lower likelihood of 3S. |
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