Sudden Stops and Currency Crashes

Yanping Zhao, Jakob Haan, Bert Scholtens and Haizhen Yang

Review of International Economics, 2014, vol. 22, issue 4, 660-685

Abstract: This paper investigates which factors determine whether sudden stops in international capital flows are followed by a currency crash using data for 85 economies in the period 1980–2012. An event study approach is used for an 11-year window around the crises for nine potential explanatory variables. In addition, the paper estimates discrete-choice panel models. The results suggest that low trade openness, shallow financial markets, and current account imbalances increase the likelihood that a sudden stop will be followed by a currency crash. Moreover, it is established that the impact of these factors differs across different exchange rate regimes.

Date: 2014
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