Sudden Stops and Currency Crashes |
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| Authors: | Yanping Zhao Jakob de Haan Bert Scholtens Haizhen Yang |
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| Institution: | 1. University of Groningen, , The Netherlands;2. Ocean University of China, , Qingdao, China;3. De Nederlandsche Bank, , Amsterdam, The Netherlands;4. CESifo, , Munich, Germany;5. +31‐50363‐7064+31‐50363‐8252;6. Faculty of Economics and Business, University of Groningen, , Groningen, The Netherlands;7. School of Management, University of Saint Andrews, , Scotland, UK;8. School of Management, University of Chinese Academy of Sciences (CAS), , Beijing, China;9. Research Center of Fictitious Economy & Data Science, CAS, , Beijing, China |
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| Abstract: | This paper investigates which factors determine whether sudden stops in international capital flows are followed by a currency crash using data for 85 economies in the period 1980–2012. An event study approach is used for an 11‐year window around the crises for nine potential explanatory variables. In addition, the paper estimates discrete‐choice panel models. The results suggest that low trade openness, shallow financial markets, and current account imbalances increase the likelihood that a sudden stop will be followed by a currency crash. Moreover, it is established that the impact of these factors differs across different exchange rate regimes. |
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