Policies for managing sudden stops

Abstract

Managing capital flows needs an appropriate association of foreign exchange reserves, foreign borrowing, and capital control. These policies are considered as a tool to predict sudden stops (SS). Consequently, this analysis identifies the occurrences of SS for a sample of 200 countries within the period 1985 - 2019. The probability of SS is determined through a logit model. Results suggest that effective management reduces the probability of sudden stops. A spillover risk influence analysis was conducted on the gross domestic product, consumption, investment, and unemployment. The results show harmful impacts on these macroeconomic variables. The findings demonstrate that countries with a satisfactory level of exchange foreign reserves, small foreign borrowing, and initiating capital controls before the occurrence of SS, are less touched by the spillover risk than emergent economies which are more vulnerable than rich economies.

Keywords

• sudden stops
• policies
• capital flows
• debts
• reserves
• controls