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Leverage Cycles, Growth Shocks, and Sudden Stops in Capital Inflows

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  • Emter, Lorenz

    (Central Bank of Ireland and Trinity College Dublin)

Abstract

Using a quarterly panel of 98 advanced as well as emerging and developing countries from 1990 to 2017, this paper shows that domestic variables are significantly 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 a significant determinant of sudden stops. This is in line with real business cycle models including an occasionally binding credit constraint and income trend shocks.

Suggested Citation

  • Emter, Lorenz, 2020. "Leverage Cycles, Growth Shocks, and Sudden Stops in Capital Inflows," Research Technical Papers 06/RT/20, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:06/rt/20
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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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