Sudden Flight and True Sudden Stops

32 Pages Posted: 6 Dec 2006 Last revised: 10 Oct 2022

See all articles by Alexander D. Rothenberg

Alexander D. Rothenberg

Board of Governors of the Federal Reserve System

Francis E. Warnock

University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

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Date Written: December 2006

Abstract

We extend the sudden stops literature by allowing crisis episodes to be caused by either the retreat of global investors, as is assumed but not shown in the extant literature, or the sudden flight of local investors. We find that almost half of the previously defined sudden stops are actually episodes of sudden flight. Compared to sudden flight, true sudden stops are bunched and are associated with greater slowdowns in economic activity and sharper currency depreciations. We show that the empirical regularities of sudden flight and true sudden stops are consistent with theoretical models that incorporate gross capital flows and information asymmetries.

Suggested Citation

Rothenberg, Alexander D. and Warnock, Francis E., Sudden Flight and True Sudden Stops (December 2006). NBER Working Paper No. w12726, Available at SSRN: https://ssrn.com/abstract=948188

Alexander D. Rothenberg

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