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Macroeconomics in Times of Liquidity CrisesSearching for Economic Essentials$
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Guillermo A. Calvo

Print publication date: 2016

Print ISBN-13: 9780262035415

Published to MIT Press Scholarship Online: May 2017

DOI: 10.7551/mitpress/9780262035415.001.0001

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Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration

Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration

Chapter:
(p.143) 7 Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration
Source:
Macroeconomics in Times of Liquidity Crises
Author(s):

Guillermo Calvo

Alejandro Izquierdo

Luis-Fernando Mejía

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262035415.003.0008

Using a sample of 110 developed and developing countries for the period 1990-2004, the chapter claims that a small supply of tradable goods relative to their domestic absorption, and large foreign-exchange denominated debts towards the domestic banking system, denoted Domestic Liability Dollarization, are key determinants of the probability of Systemic Sudden Stop (3S). Moreover, the larger is financial integration, the larger is likely to be the probability of 3S; however, beyond a critical point the relationship gets a sign reversion.

Keywords:   Systemic Sudden Stop, Current Account Deficit, Domestic Liability Dollarization, Financial Integration

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