Sudden Stops

October, Saturday 29th | 8:30-10:30hs

Contributed Session CS30

Room 69

 
Chair: Assaf Razin, Tel Aviv University and Cornell University
 
 

 

 Relative Prices under Sudden Stop: Level and Volatility Effects

 

  

 

Session: Sudden Stops

 

  

Presenter

 Alejandro Izquierdo, Inter-American Development Bank

 

  

Author(s)

Alejandro Izquierdo, Inter-American Development Bank

Guillermo Calvo, Inter-American Development Bank

Rudy Loo-Kung, Columbia University

 

  

 

 

Sudden Stops in capital flows are associated with increased volatility in relative prices. We introduce a model based on information acquisition to rationalize this behavior. An analysis of the conditional variance of the wholesale price to consumer price ratio in a panel ARCH context confirms the relevance of Sudden Stops and potential balance-sheet effects (potential changes in the real exchange rate interacted with liability dollarization) in explaining higher volatility in relative prices.

 

 

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 Government Debt and Sudden Stops: A Coordination Game

 

  

 

Session: Sudden Stops

 

  

Presenter

 Friederike Koehler, Ludwig Maximilian Universität München

 

  

Author(s)

Friederike Koehler, Ludwig Maximilian Universität München

 

  

 

 

This paper presents a model that contributes to the explanation of the onset of a sudden stop of private capital flows by considering the role of possible coordination failure between private investors. We are applying the methodology of global games to an analytical model, which explains sudden stops by a high fiscal burden. Thereby, we aim at adding instruments to policy makers' toolkits to prevent sudden stops.

 

 

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 Evaluation of Exchange-Rate, Capital–Market Liberalization, and Dollarization Regimes: The Role of Sudden Stops

 

  

 

Session: Sudden Stops

 

  

Presenter

 Assaf Razin, Tel Aviv University and Cornell University

 

  

Author(s)

Assaf Razin, Tel Aviv University and Cornell University

Yona Rubinstein, Tel Aviv University

 

  

 

 

Findings indicate that the effects of exchange rate regimes and liberalization regimes on macroeconomic performance go through a direct channel, captured in the traditional growth equation, and an indirect channel which influences growth through the probability of sudden stops. We further analyze how the projected probability of sudden stops affects the level of dollarization, and provide estimates for the effect of dollarization on growth.

 

 

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 Do Multiple Exchange Rates Stop Capital Outflows? Evidence from Developing Countries

 

  

 

Session: Sudden Stops

 

  

Presenter

Leopoldo Avellan, University of Maryland, ESPOL and Banco Central del Ecuador

 

  

Author(s)

Leopoldo Avellan, University of Maryland, ESPOL and Banco Central del Ecuador

 

  

Sponsor

The Tinker Foundation Scholarship

 

  

 

 

This paper evaluates the effectiveness of multiple exchange rates systems as a policy tool to stop capital outflows. Controlling for push and pull factors that drive capital flows, and using data from 45 developing countries for the 1980-2001 period, it cannot find empirical support for the claim that segmenting the foreign exchange market stops capital outflows.

 

 

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 Managing Currency Crises: The Case for Dual Demand Driven Monetary Policy

 

  

 

Session: Sudden Stops

 

  

Presenter

 Chinyoong Wong, New Era College, Malaysia

 

  

Author(s)

Chinyoong Wong, New Era College, Malaysia

 

  

Sponsor

The American University of Paris Scholarship

 

  

 

 

This paper shows that without compromising to the credibility of fixed exchange rates, and not incompatible to the banks' willingness to lend, the central bank plays the role of last resort via open market forward purchase to help the banking system sail through the capital reversal. The lower yield on bank reserves bolsters the prospective output that initiates greater demand for money, and thereby enticing capital re-inflow, building a more resilient economy.

 

 

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