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.

Case | HBS Case Collection | May 2020 (Revised June 2020)

The Coronavirus (COVID-19) Pandemic and the Global Economy (A)

Alberto Cavallo and Christian Godwin

In April 2020, the world struggled to contain the exponential escalation of the coronavirus (COVID-19) pandemic. Dozens of countries had imposed restrictions on travel, work, and social gatherings. A large share of the global population was under lockdowns and unprecedented supply and demand disruptions crippled the economy. In response, central banks announced massive lending programs to avoid a financial meltdown, and governments were launching unprecedented fiscal packages designed to contain the collapse. In a matter of weeks, the pandemic turned into one of the worst global economic crises since the Great Depression. As governments struggled to make policy decisions, uncertainty and tensions were rising. How to balance the public health and economic concerns? What would be the economic and political consequences of the policy response? Was this the end of globalization, or the beginning of a new era of international cooperation? The only certainty was that some of the hardest choices still lay ahead.

Keywords: Demand and Consumers; Supply and Industry; Finance; Central Banking; Financial Markets; International Finance; Globalization; Government and Politics; Health Pandemics; Decision Making; Macroeconomics; Employment; Crisis Management; Supply Chain; Risk and Uncertainty; Air Transportation Industry; Banking Industry; Consumer Products Industry; Employment Industry; Financial Services Industry; Food and Beverage Industry; Health Industry; Medical Devices and Supplies Industry; Pharmaceutical Industry; Public Administration Industry; Retail Industry; Service Industry; Shipping Industry; Tourism Industry; Travel Industry; Asia; China; Europe; Latin America; Africa; United States;

Citation:

Cavallo, Alberto, and Christian Godwin. "The Coronavirus (COVID-19) Pandemic and the Global Economy (A)." Harvard Business School Case 720-031, May 2020. (Revised June 2020.) View Details

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The Covid-19 Pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of CPI inflation. I use data collected from credit and debit transactions in the US to update the official basket weights. I find that the Covid inflation rate is higher for both headline and core CPIs, particularly for low-income households. I find similar results in 12 of 17 additional countries. The difference is growing over time as consumers spend relatively more on food and categories with rising inflation, and relatively less on transportation and categories experiencing significant deflation.

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

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