In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows

November 1, 2019

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Format: Chicago

Antonio David, and Carlos Goncalves. In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates what factors affect the duration of sudden stops in capital flows using quarterly data for a large panel of countries. We find that countries with floating exchange rate regimes tend to experience shorter sudden stop episodes and that fixed exchange rate regimes are associated with longer periods of low output growth following sudden stops. These effects are quantitatively large: having a flexible exchange rate regime increases the probability of exiting the sudden stop state by between 50 to 80 percent. Flexible exchange rate regimes significantly shorten the duration of output decelerations following sudden stops by over 30 percent. Positive variations in terms of trade also abbreviate the duration of sudden stops. In terms of policies, identification is trickier, but the evidence suggests that monetary policy tightening shortens the duration of sudden stops. Changes in capital account restrictions do not seem to matter.

Subject: Balance of payments, Capital controls, Capital flows, Exchange rate arrangements, Foreign exchange, International trade, Sudden stops, Terms of trade

Keywords: Capital controls, Capital Flows, Commodity terms of trade index, Descriptive statistics, Duration Analysis, ER regime, Exchange rate arrangements, Exchange rate regime, Flexible regime, Floating exchange rate regime, Global, Moving average, State, Sudden Stops, Terms of trade, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/230
Stock No:

WPIEA2019230
ISBN:

9781513516080
ISSN:

1018-5941

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