Sudden flight and true sudden stops

Alexander D. Rothenberg, Francis E. Warnock

Research output: Contribution to journalArticle

41 Scopus citations

Abstract

We extend the sudden stops literature by recognizing that crisis episodes can be caused by the retreat of global investors, as is commonly assumed but not shown in the extant literature, or by the sudden flight of local investors. We find that almost half of the previously defined sudden stops are actually episodes of sudden flight in which gross inflows resume quickly and strongly. In contrast, in true sudden stops inflows cease for an extended period and, compared to sudden flight, these episodes are bunched and are associated with greater slowdowns in economic activity and sharper currency depreciations. We also show that the empirical regularities of sudden flight and true sudden stops are consistent with theoretical models that incorporate gross capital flows and information asymmetries.

Original languageEnglish (US)
Pages (from-to)509-524
Number of pages16
JournalReview of International Economics
Volume19
Issue number3
DOIs
StatePublished - Aug 1 2011
Externally publishedYes

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

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