Sudden stops and the Mexican wave: Currency crises,capital flow reversals and output loss in emerging markets |
| |
Authors: | Michael M. Hutchison Ilan Noy |
| |
Affiliation: | 1. Department of Economics, Building E2, University of California, Santa Cruz, Santa Cruz, CA 95064, United States;2. Department of Economics, Saunders Hall 542, University of Hawaii, Manoa, Honolulu, HI 96822, Hawaii |
| |
Abstract: | Sudden stops are the simultaneous occurrence of a currency/balance of payments crisis with a reversal in capital flows. We investigate whether sudden-stop crises are a unique phenomenon and whether they entail an especially large and abrupt pattern of output collapse (a “Mexican wave”). Using a panel data set over 1975–1997 and covering 24 emerging-market economies, we distinguish between the output effects of currency crises, capital inflow reversals, and sudden-stop crises. Sudden-stop crises have a large negative, but short-lived, impact on output growth over and above that found with currency crises. A currency crisis typically reduces output by about 2–3%, while a sudden stop reduces output by an additional 6–8% in the year of the crisis. The cumulative output loss of a sudden stop is even larger, around 13–15% over a 3-year period. Our model estimates correspond closely to the output dynamics of the ‘Mexican wave’ (such as seen in Mexico in 1995, Turkey in 1994 and elsewhere), and out-of-sample predictions of the model explain well the sudden (and seemingly unexpected) collapse in output associated with the 1997–1998 Asian Crisis. |
| |
Keywords: | F32 F43 O16 |
本文献已被 ScienceDirect 等数据库收录! |
|