NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sudden Flight and True Sudden Stops

Alexander D. Rothenberg, Francis E. Warnock

NBER Working Paper No. 12726
Issued in December 2006
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w12726

Published: Review of International Economics, Volume 19, Issue 3, pages 509–524, August 2011

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