NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sudden Stops and Output Drops

V.V. Chari, Patrick Kehoe, Ellen R. McGrattan

NBER Working Paper No. 11133
Issued in February 2005
NBER Program(s):   EFG   IFM

In recent financial crises and in recent theoretical studies of them, abrupt declines in capital inflows, or sudden stops, have been linked with large drops in output. Do sudden stops cause output drops? No, according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country's collateral constraint on foreign borrowing. In this model, in fact, sudden stops lead to output increases, not decreases. An examination of the quantitative effects of a well-known sudden stop, in Mexico in the mid-1990s, confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone. To generate an output drop during a financial crisis, as other studies have done, the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop.

download in pdf format
   (178 K)

email paper

This paper is available as PDF (178 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11133

Published: Chari, V. V., Patrick J. Kehoe and Ellen R. McGrattan. "Sudden Stops And Output Drops," American Economic Review, 2005, v95(2,May), 381-387.

Users who downloaded this paper also downloaded these:
Calvo, Izquierdo, and Mejía w10520 On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects
Mendoza w11966 Lessons From the Debt-Deflation Theory of Sudden Stops
Calvo, Izquierdo, and Talvi w9828 Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons
Calvo w12788 Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort
Mendoza w12564 Endogenous Sudden Stops in a Business Cycle Model with Collateral Constraints:A Fisherian Deflation of Tobin's Q
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us