Domestic Antidotes to Sudden Stops

Eduardo Cavallo, Alejandro Izquierdo and John León-Díaz

No 8528, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Sudden Stops in net capital flows can be prevented when the actions of domestic investors offset a reduction in foreign lending. This paper presents evidence that while sudden stops in gross inflows—i.e., a tightening of the external borrowing constraint—are associated with global conditions and therefore, are largely outside of the control of local policymakers, domestic factors such as low levels of liability dollarization, exchange rate flexibility, inflation targeting regimes, and a solid institutional background are important to prevent these episodes from becoming sudden stops in net capital flows. Under these favorable local conditions, domestic investors may perceive reduced risk in bringing in resources at the time of an external shock, thus insulating the country from this shock.

JEL-codes: E44 E58 E60 (search for similar items in EconPapers)
Date: 2017-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://publications.iadb.org/publications/english ... _to_Sudden_Stops.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:8528

DOI: 10.18235/0000825

Access Statistics for this paper

More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().