On the role of capital flows – or the lack thereof – in sudden stops

Martial Dupaigne and Marc Y. Robert

Revue d'économie politique, 2006, vol. 116, issue 1, 79-90

Abstract: We study the relationship between capital flows and output on a panel of 22 emerging countries, between 1979 and 2001. We contrast this relationship during episodes of sudden stops crises and outside such crises. The issue we investigate is whether the behaviour of capital flows during sudden stops is similar to the regular business cycle phenomenon but at a highly unusual scale, or if it comes under a different regime. We show the existence of a non-linear relationship between capital flows and output. The lack of capital flows is more harmful during sudden stops than during the periods of our sample that have experienced only large drops in net capital inflows, or large depreciations or large recessions.

Keywords: capital flows; emerging countries; sudden stops (search for similar items in EconPapers)
Date: 2006
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