Generally, international flows of capital and foreign direct investment attraction are challengeable issues in the literature of economic growth and development in emerging market countries. However, the fluctuations in foreign direct investment, including sudden flood and stop, will affect emerging markets' output and macroeconomic variables. Using an econometric model with unbalanced panel da...

although capital inflows affect positively economies in long-run, it is possible to generate somehow destructive effects if there is no any control on financial markets. this study tries to explore main determinants of large capital inflows episodes to emerging markets. it is also investigated whether the large capital inflows episodes lead to financial crises in forms of sudden stop phenomenon...

In this paper, I focus on a phenomenon that has not received much attention in the literature, namely that the mere expectation of foreign direct investment (FDI) incentivizes long-maturity investment projects by domestic residents, and a Sudden Stop when expectations are frustrated. Long-maturity investment projects enhance productivity but increase the economy’s vulnerability to Sudden Stop. ...

This paper examines the state-dependent multipliers of government spending in sudden stop economies. First, I provide cross-country evidence that an increase is more effective stimulating consumption and appreciating real exchange rate crises than normal times. To rationalize this, then build a small open economy model with collateral constraint on international borrowing. During financial cris...

The paper studies mechanisms through which a sudden stop in international credit flows may bring about financial and balance of payments crises. It is shown that these crises can occur even though the current account deficit is fully financed by foreign direct investment. However, equity and long-term bond financing may shield the economy from sudden stop crises. The paper also examines possibl...

This article investigates the effects of macroeconomic policy (monetary and fiscal) on output growth during financial crises characterized by a “sudden stop” in net capital inflows in developing and emerging market economies. We investigate 83 sudden stop crises in 77 countries over 1982-2003 using a baseline empirical model to control for the various determinants of output losses during sudden...

Using annual financial statements of individual banks operating in East Asia and Latin America, we address the question whether banks are significantly affected by a sudden stop of capital inflows an important source of vulnerability in recent years in these regions. In particular, it is tested for cross-sectional differences in the lending behavior of banks during a sudden stop. In most cases,...

During the Asian financial crises, interest rates were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. ∗Northwestern University and Tilburg University. †Northwestern University, and NBER. ‡International Monetary Fund. §Braggion thanks the European Central Bank-Research Department for its hospitality. Christiano is grateful f...