In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows
IMF Working Papers, November 1, 2019
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- In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows
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Bibliographic details
- Authors: Antonio David, Carlos Goncalves
- Published: November 1, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513516080.001
Summary
- Investigates what factors affect the duration of sudden stops in capital flows using quarterly data for a large panel of countries.
- Focuses on duration of sudden stop episodes and duration of output decelerations following sudden stops.
Key empirical findings
- Exchange rate regime:
- Countries with floating exchange rate regimes tend to experience shorter sudden stop episodes.
- Fixed exchange rate regimes are associated with longer periods of low output growth following sudden stops.
- 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.
- Terms of trade:
- Positive variations in terms of trade abbreviate the duration of sudden stops.
- Monetary policy and capital account policies:
- Evidence suggests that monetary policy tightening shortens the duration of sudden stops.
- Changes in capital account restrictions do not seem to matter.
Methodology and scope
- Data frequency and coverage:
- Uses quarterly data for a large panel of countries.
- Analytical focus:
- Duration analysis of sudden stops in capital flows and associated output decelerations.
Policy implications
- Exchange rate flexibility:
- Flexible exchange rate regimes are quantitatively important in shortening sudden stop durations and output decelerations.
- Monetary policy:
- Monetary policy tightening appears to be associated with shorter sudden stop durations.
- Capital account restrictions:
- Changes in capital account restrictions show no discernible effect on duration.
Subjects and keywords
- Subjects: 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
IMF Working Paper by Antonio David and Carlos Goncalves, November 1, 2019; 33 pages; Working Paper No. 2019/230; DOI: https://doi.org/10.5089/9781513516080.001; ISBN: 9781513516080.
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- Working Paper