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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: Crises and Recoveries in EMs

Systemic Sudden Stops: Crises and Recoveries in EMs

(p.117) 6 Systemic Sudden Stops: Crises and Recoveries in EMs
Macroeconomics in Times of Liquidity Crises

Guillermo Calvo

Pablo Ottonello

The MIT Press

The chapter presents stylized facts about recession episodes associated with Systemic Sudden Stops (3S), i.e., large and abrupt reversals in capital inflows in which several economies are hit at about the same time. This choice is motivated by the conjecture that 3S are mostly triggered by liquidity malfunction, which is a central topic of the book. The chapter documents that the contraction of economic activity during 3S recession episodes is mostly driven by measured TFP, and is accompanied by a collapse in bank credit, investment, little consumption smoothing, and a large adjustments of real wages and the real exchange rate. The recovery from these episode occurs with a precarious recovery of credit (“Phoenix Miracles”) and displays persistent effects on economic activity, investment, and real wages.

Keywords:   Systemic Sudden Stop, Recession Episodes, Recoveries, Phoenix Miracles

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