External Finance, Sudden Stops, and Financial Crisis: What is Different this Time?

35 Pages Posted: 19 Jul 2010

See all articles by F. Gulcin Ozkan

F. Gulcin Ozkan

King's College London

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Date Written: July 2010

Abstract

This paper develops a two-country DSGE model to investigate the transmission of a global financial crisis to a small open economy. We find that economies hit by a sudden stop arising from financial distress in the global economy are likely to face a more prolonged crisis than sudden stop episodes of domestic origin. Moreover, in contrast to the existing literature, our results suggest that the greater a country's trade integration with the rest of the world, the greater the response of its macroeconomic aggregates to a sudden stop of capital flows.

Suggested Citation

Ozkan, Gulcin and Unsal, D. Filiz, External Finance, Sudden Stops, and Financial Crisis: What is Different this Time? (July 2010). IMF Working Paper No. 10/158, Available at SSRN: https://ssrn.com/abstract=1641009

Gulcin Ozkan

King's College London

Strand
London, England WC2R 2LS
United Kingdom

D. Filiz Unsal (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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