In search of lost time: Examining the duration of growth-reducing sudden stops

Antonio David and Carlos Goncalves

Journal of International Money and Finance, 2021, vol. 117, issue C

Abstract: This paper investigates the duration of sub-par growth spells associated with sudden stops in private capital flows. Our key finding is that countries featuring floating exchange rate regimes experience shorter growth-reducing sudden stops than countries with more rigid regimes. The estimated effect is large: countries with flexible exchange rate regimes are at least 50 percent more likely to exit a growth-reducing sudden stop. Our results withstand a number of robustness checks, including: controlling for banking crises and initial levels of debt, and introducing unobserved heterogeneity. The paper revisits the heated policy debate of the 1990s on fixed vs. flexible exchange rate regimes from a different angle and uncovers another important shock absorber role of flexible exchange rates.

Keywords: Sudden Stops; Capital flows; Duration analysis (search for similar items in EconPapers)
JEL-codes: F21 F32 F41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621001017

DOI: 10.1016/j.jimonfin.2021.102450

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