Relative Price Volatility Under Sudden Stops: The Relevance of Balance Sheet Effects

Guillermo Calvo, Alejandro Izquierdo and Rudy Loo-Kung

No 11492, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Sudden Stops are associated with increased volatility in relative prices. We introduce a model based on information acquisition to rationalize this increased volatility. An empirical analysis of the conditional variance of the wholesale price to consumer price ratio using panel ARCH techniques confirms the relevance of Sudden Stops and potential balance-sheet effects as key determinants of relative-price volatility, where balance-sheet effects are captured by the interaction of a proxy for potential changes in the real exchange rate (linked to the degree of external leverage of the absorption of tradable goods) and a measure of domestic liability dollarization.

JEL-codes: F31 F32 F34 F41 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-ifn
Note: IFM
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Citations: View citations in EconPapers (27)

Published as Calvo, Guillermo A., Alejandro Izquierdo and Rudy Loo-Kung. "Relative Price Volatility Under Sudden Stops: The Relevance Of Balance Sheet Effects," Journal of International Economics, 2006, v69(1,Jun), 231-254.

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Journal Article: Relative price volatility under Sudden Stops: The relevance of balance sheet effects (2006)
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