Sudden Stop (economics)
A sudden stop in capital flows is defined as a sudden slowdown in private capital inflows into emerging market economies, and a corresponding sharp reversal from large current account deficits into smaller deficits or small surpluses. Sudden stops are usually followed by a sharp decrease in output, private spending and credit to the private sector, and real exchange rate appreciation. The term “sudden stop” was inspired by a banker’s comment on a paper by Rüdiger Dornbusch and Alejandro Werner about Mexico, that “it is not speed that kills, it is the sudden stop”.
Sudden stops are commonly described as periods that contain at least one observation where the year-on-year fall in capital flows lies at least two standard deviations below its sample mean. The start of the sudden stop period is determined by the first time the annual change in capital flows falls one standard deviation below the mean and the end of the sudden stop period is determined once the annual change in capital flows exceeds one standard deviation below its sample mean.
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Famous quotes containing the words sudden and/or stop:
“Much more frequent in Hollywood than the emergence of Cinderella is her sudden vanishing. At our party, even in those glowing days, the clock was always striking twelve for someone at the height of greatness; and there was never a prince to fetch her back to the happy scene.”
—Ben Hecht (1893–1964)
“We should be careful to get out of an experience only the wisdom that is in it—and stop there; lest we be like the cat that sits down on a hot stove-lid. She will never sit down on a hot stove-lid again—and that is well; but also she will never sit down on a cold one anymore.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)