TY  - JOUR
AU  - Calvo,Guillermo A.
AU  - Izquierdo,Alejandro
AU  - Mejía,Luis-Fernando
TI  - Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14026
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w14026
L1  - http://www.nber.org/papers/w14026.pdf
N1  - Author contact info:
Guillermo A. Calvo
Columbia University
School of International and Public Affairs
420 West 118th St, Room 1303B
MC3332
New York, NY 10027
Tel: 212/854-4264
E-Mail: gc2286@columbia.edu

Alejandro Izquierdo
Inter-American Development Bank
1300 New York Ave, N. W.
Washington, D. C., 20577
E-Mail: alejandroi@iadb.org

Luis-Fernando Mejía
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637
E-Mail: lfmejia@uchicago.edu
AB  - Using a sample of 110 developed and developing countries for the period 1990-2004 we analyze the empirical characteristics of systemic sudden stops (3S) in capital flows --understood as large and largely unexpected capital account contractions that occur in periods of systemic turmoil -- and the relevance of balance sheet effects in the likelihood of their materialization. We conjecture that large real exchange rate (RER) fluctuations come hand in hand with 3S. A small supply of tradable goods relative to their domestic absorption -- a proxy for potential changes in the real exchange rate -- and large foreign-exchange denominated debts towards the domestic banking system, denoted Domestic Liability Dollarization, DLD, are claimed to be key determinants of the probability of 3S, conforming a balance-sheet effect that impacts on the probability of 3S in non-linear fashion. Regarding financial integration, the larger is the latter, the larger is likely to be the probability of Sudden Stop; however, beyond a critical point the relationship gets a sign reversion.
ER  -