Rothenberg article on sudden flight and true sudden stops published in Review of Int Economics
Jul 31, 2011
Sudden Flight and True Sudden Stops
Alexander D. Rothenberg & Francis E. Warnock
Review of International Economics, July 2011
The authors extend the sudden stops literature by recognizing that crisis episodes can be caused by the retreat of global investors, as is commonly assumed but not shown in the extant literature, or by the sudden flight of local investors.
The authors find that almost half of the previously defined sudden stops are actually episodes of sudden flight in which gross inflows resume quickly and strongly. In contrast, in true sudden stops inflows cease for an extended period and, compared to sudden flight, these episodes are bunched and are associated with greater slowdowns in economic activity and sharper currency depreciations. They also show that the empirical regularities of sudden flight and true sudden stops are consistent with theoretical models that incorporate gross capital flows and information asymmetries.