External Finance, Sudden Stops, and Financial Crisis: What is Different This Time?

Author/Editor:

Gülçin Özkan ; Filiz D Unsal

Publication Date:

July 1, 2010

Electronic Access:

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Summary:

This paper develops a two-country DSGE model to investigate the transmission of a global financial crisis to a small open economy. We find that economies hit by a sudden stop arising from financial distress in the global economy are likely to face a more prolonged crisis than sudden stop episodes of domestic origin. Moreover, in contrast to the existing literature, our results suggest that the greater a country's trade integration with the rest of the world, the greater the response of its macroeconomic aggregates to a sudden stop of capital flows.

Series:

Working Paper No. 2010/158

Subject:

Consumption Currencies Financial crises Labor Money National accounts Return on investment Self-employment

English

Publication Date:

July 1, 2010

ISBN/ISSN:

9781455201419/1018-5941

Stock No:

WPIEA2010158

Pages:

34

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