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Sudden Flight and True Sudden Stops

Alexander D. Rothenberg andFrancis E. Warnock

We extend the sudden stops literature by allowing crisis episodes to be caused by either the retreat of global investors, as is assumed but not shown in the extant literature, or the sudden flight of local investors. We find that almost half of the previously defined sudden stops are actually episodes of sudden flight. Compared to sudden flight, true sudden stops are bunched and are associated with greater slowdowns in economic activity and sharper currency depreciations. We 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.

Keywords: international capital flows, capital flight, emerging market crises

JEL-Classification: F32, G15

Last updated 28 August 2014 by IIIS (Email).