External Finance, Sudden Stops, and Financial Crisis : What is Different This Time?
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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. 10/158
Subject:
Central banking Emerging markets Financial crises Monetary policy Sudden stops
English
Publication Date:
July 1, 2010
ISBN/ISSN:
9781455201419/1018-5941
Stock No:
WPIEA2010158
Format:
Paper
Pages:
34
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