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In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows

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  • Mr. Antonio David
  • Carlos Goncalves

Abstract

This paper investigates what factors affect the duration of sudden stops in capital flows using quarterly data for a large panel of countries. We find that countries with floating exchange rate regimes tend to experience shorter sudden stop episodes and that fixed exchange rate regimes are associated with longer periods of low output growth following sudden stops. These effects are quantitatively large: having a flexible exchange rate regime increases the probability of exiting the sudden stop state by between 50 to 80 percent. Flexible exchange rate regimes significantly shorten the duration of output decelerations following sudden stops by over 30 percent. Positive variations in terms of trade also abbreviate the duration of sudden stops. In terms of policies, identification is trickier, but the evidence suggests that monetary policy tightening shortens the duration of sudden stops. Changes in capital account restrictions do not seem to matter.

Suggested Citation

  • Mr. Antonio David & Carlos Goncalves, 2019. "In Search of Lost Time: Examining the Duration of Sudden Stops in Capital Flows," IMF Working Papers 2019/230, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/230
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    Cited by:

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    2. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66, October –.
    3. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.

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