## Sudden Stops and Currency Drops: A Historical Look

_IMF Working Papers, May 1, 2006_

## Source details

**Canonical URL:** [Sudden Stops and Currency Drops: A Historical Look](https://www.imf.org/en/publications/wp/issues/2016/12/31/sudden-stops-and-currency-drops-a-historical-look-19099)

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## Bibliographic details
- Authors: Luis Catão
- Published: May 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451863932.001

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### Summary
- Recent manifestations of sudden stops (SSs) in international capital flows have striking parallels in the early financial globalization era preceding World War I.
- All main capital-importing countries then faced episodic capital flow reversals averaging some 5 percent of GDP and with a median duration of four years.
- Most SSs displayed striking crosscountry synchronization, being immediately preceded by rising world interest rates.
- Both fixed and floating exchange rate regimes were hit, with no significant differences between them.
- Not all SSs resulted in currency drops: some countries experienced currency collapses, while others managed to preserve exchange rate stability.
- Different responses are related to domestic "frictions" that heightened the procyclicality of absorption and hindered precautionary reserve accumulation in some countries relative to others.

### Key Findings and Statistics
- Episodic capital flow reversals averaged: 5 percent of GDP.
- Median duration of sudden stops: four years.
- Publication pagination: Pages: 61.
- Publication identifiers:
  - Volume: 2006
  - Issue: 133
  - Series: Working Paper No. 2006/133
  - DOI: https://doi.org/10.5089/9781451863932.001
  - Stock No: WPIEA2006133
  - ISBN: 9781451863932
  - ISSN: 1018-5941

### Synchronization and Global Conditions
- Most SSs were immediately preceded by rising world interest rates, producing striking crosscountry synchronization of capital flow reversals.
- Synchronization occurred across both fixed and floating exchange rate regimes, with no significant differences documented between them.

### Exchange Rate Outcomes and Domestic Frictions
- Outcome heterogeneity:
  - Some countries experienced currency collapses.
  - Other countries preserved exchange rate stability despite SSs.
- Determinants of divergent outcomes:
  - Domestic "frictions" increased procyclicality of absorption.
  - These frictions hindered precautionary reserve accumulation in some countries, reducing their ability to cushion against capital flow reversals.

### Subject Classification and Keywords
- Subject: Capital flows, Capital inflows, Currencies, Exchange rates, Securities settlement systems
- Keywords: crash event, currency crash, currency-crash country, money supply, WP

*Sudden Stops and Currency Drops: A Historical Look — Luis Catão, May 1, 2006.*

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## Content in this bundle

- **Net Foreign Capital Inflows**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/sudden-stops-and-currency-drops-a-historical-look-19099_