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Capital Flows and Capital-Markets Crises: The Simple Economics of Sudden Stops (1998)
| Venue: | Journal of Applied Economics |
| Citations: | 305 - 8 self |
BibTeX
@ARTICLE{Calvo98capitalflows,
author = {Guillermo A. Calvo},
title = {Capital Flows and Capital-Markets Crises: The Simple Economics of Sudden Stops},
journal = {Journal of Applied Economics},
year = {1998},
pages = {35--54}
}
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Abstract
Abstract: The paper studies mechanisms through which a sudden stop in international credit flows may bring about financial and balance of payments crises. It is shown that these crises can occur even though the current account deficit is fully financed by foreign direct investment. However, equity and long-term bond financing may shield the economy from sudden stop crises. The paper also examines possible factors that could trigger sudden stops, and argues that the greater independence that countries have, as compared to regions of a given country, could help to explain why sudden stop crises are more prevalent and destructive at international than at national levels. The recent turmoil in emerging and not-so-emerging markets countries has caused a great deal of confusion in the economics profession. The knee-jerk reaction after Mexico’s Tequila Crisis was to blame it on fiscal deficits and, above all, current account deficits, CADs (which in Mexico reached 8 percent of GDP in 1994, and was expected to increase to 9 percent in 1995). Tequila brought back memories of the 1982 Mexico’s moratorium and
Keyphrases
sudden stop capital flow simple economics capital-markets crisis current account deficit sudden stop crisis long-term bond financing fiscal deficit economics profession knee-jerk reaction international credit flow tequila crisis national level payment crisis great deal not-so-emerging market country possible factor mexico moratorium foreign direct investment recent turmoil paper study
