A new taxonomy of sudden stops: which sudden stops should countries be most concerned about?

Available from: 
October 2013
Paper author(s): 
Andrew Powell (Inter-American Development Bank)
Eduardo Cavallo (Inter-American Development Bank)
Mathieu Pedemonte (Inter-American Development Bank)
Pilar Tavella (Harvard University)
Topic: 
Macroeconomics - Economic growth - Monetary Policy
Year: 
2013


We propose a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. We track the incidence of different types of Sudden Stops over time and relate the type of Sudden Stop to economic performance. Sudden Stops in net flows associated with reductions in gross inflows are more disruptive than those where surges in (only) gross outflows dominate. We discuss the mechanisms that might result in Sudden Stops in gross flows that are not Sudden Stops in net flows, such that shifts in financial assets or liabilities do not require a sharp current account adjustment. Still, we find Sudden Stops in gross inflows that do not provoke a sharp contraction in net flows may also be disruptive; including Sudden Stops that are driven by “other flows” ‐ which include banking flows. Our results suggest new avenues for research and future policy analysis.

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Go back to Macroeconomics and Monetary Policy

Research section: 
Lacea 2013 annual meeting
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