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Rothenberg paper on outflows-induced sudden stops published in Journal of Policy Reform

Aug 14, 2006

Outflows-induced Sudden Stops

Jillian E. Faucette, Alexander D. Rothenberg & Francis E. Warnock

The Journal of Policy Reform, August 2006

Alexander Rothenberg

Alexander Rothenberg

The term ‘sudden stop’ refers to a scenario in which an emerging market is suddenly cut off from international capital markets. Losing access to capital markets can be devastating, often resulting in a currency crisis and recession.

However, some sudden stop episodes are driven not by global investors heading for the exits, but rather by locals increasing their international claims. The source of the problem determines the policy response.

To better focus on sources rather than outcomes, sudden stops should be identified as a cessation of inflows (inflows‐induced) or a sudden surge in outflows (outflows‐induced).