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Leverage cycles, growth shocks, and sudden stops in capital inflows

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  • Emter, Lorenz

Abstract

Using a quarterly panel of 98 advanced as well as emerging and developing countries from 1990 to 2018, this paper examines covariates of sudden stops in capital inflows. It shows that domestic variables are related to the probability of incurring sharp reversals in capital inflows controlling for global push factors. In particular, negative growth shocks combined with high levels of leverage in the domestic private sector are significantly correlated with sudden stops. This is in line with real business cycle models including an occasionally binding credit constraint and income trend shocks.

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  • Emter, Lorenz, 2023. "Leverage cycles, growth shocks, and sudden stops in capital inflows," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 711-731.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:711-731
    DOI: 10.1016/j.iref.2022.11.029
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    1. Maria Siranova & Menbere Workie Tiruneh & Brian Konig, 2024. "From abnormal FDI to a normal driver of sudden stop episodes," Working Papers 2024.02, International Network for Economic Research - INFER.

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    More about this item

    Keywords

    International capital flows; Sudden stops; Financial stability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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