The Role of Expectations in Sudden Stops
Working Papers from Cornell University, Center for Analytic Economics
This paper presents a flexible-price small open economy model with a "peso problem" in productivity states. Agents rationally adjust their beliefs about future productivity growth after the arrival of news. A downward revision of expectations triggers a Sudden Stop, together with large declines in GDP, employment, consumption and investment. There need not be any actual change in productivity growth to generate large fluctuations. Quantitatively, the model goes a long way in matching the 1998 Korean Crisis and subsequent swift recovery.
JEL-codes: E20 E30 F30 F40 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:07-10
Access Statistics for this paper
More papers in Working Papers from Cornell University, Center for Analytic Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().