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Sudden Stops and Currency Crashes
Author(s) -
Zhao Yanping,
Haan Jakob,
Scholtens Bert,
Yang Haizhen
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12119
Subject(s) - economics , sudden stop , currency , crash , openness to experience , exchange rate , monetary economics , currency crisis , capital (architecture) , emerging markets , current account , econometrics , panel data , capital flows , macroeconomics , geography , profit (economics) , psychology , social psychology , programming language , archaeology , computer science , microeconomics
This paper investigates which factors determine whether sudden stops in international capital flows are followed by a currency crash using data for 85 economies in the period 1980–2012. An event study approach is used for an 11‐year window around the crises for nine potential explanatory variables. In addition, the paper estimates discrete‐choice panel models. The results suggest that low trade openness, shallow financial markets, and current account imbalances increase the likelihood that a sudden stop will be followed by a currency crash. Moreover, it is established that the impact of these factors differs across different exchange rate regimes.