Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880–1913

Michael D. Bordo; Alberto  Cavallo; Christopher  Meissner

Article | Journal of Development Economics | March 2010

Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880–1913

by Michael D. Bordo, Alberto Cavallo and Christopher Meissner

Abstract

We study the determinants and output effects of sudden stops in capital inflows during an era of intensified globalization from 1880 to 1913. Higher levels of exposure to foreign currency debt and large current account deficits associated with reliance on foreign capital greatly increased the likelihood of experiencing a sudden stop. Trade openness and strong reserve positions had the opposite effect. Sudden stops accompanied by financial crises are associated with drops in output per capita below trend equal to three to four percent. Frictions in the international capital markets of the day are a likely candidate for these output losses. Sudden stops connected with crises do not seem to bring trend growth downwards. Sudden stops not connected with crises appear to be associated with significant declines in trend growth.

Keywords: sudden stops; capital flows; Economics; Macroeconomics; Economic Growth; Financial Crisis; Globalization; History;

Format: Print

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Citation:

Bordo, Michael D., Alberto Cavallo, and Christopher Meissner. "Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880–1913." Journal of Development Economics 91, no. 2 (March 2010): 227–241.

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Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880–1913

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