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Surges and Sudden Stops of Capital Flows to Emerging Markets

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  • Ozan Sula

Abstract

A characteristic of many of the recent emerging market currency crises is a preceding surge in capital inflows and their reversals or ‘sudden stops’ during the crises. The empirical investigation of 38 emerging market economies between 1990 and 2003 reveals that a surge in capital inflows significantly increases the probability of a sudden stop. In addition, a surge accompanied by a high current account deficit or an appreciated real exchange rate is more likely to be associated with a sudden stop. The paper also finds that a surge that is dominated by private loans and portfolio flows rather than direct investment has a higher probability to end with a sudden stop.
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Suggested Citation

  • Ozan Sula, 2010. "Surges and Sudden Stops of Capital Flows to Emerging Markets," Open Economies Review, Springer, vol. 21(4), pages 589-605, September.
    • Handle: RePEc:kap:openec:v:21:y:2010:i:4:p:589-605
    DOI: 10.1007/s11079-008-9103-7
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    More about this item

    Keywords

    Capital flows; Sudden stops; Surges in capital flows; Private loans; Portfolio flows; Foreign direct investment; F32; F41;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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