ABSTRACT
This chapter focuses on the sudden stops of foreign portfolio investment (FPI) flows and the impacts on the banking systems and macroeconomic outcomes of both home and host countries in the short-run and in the long-run. Looking at a different direction, Stijn Claessens and Ayhan Kose argue that sudden stops are the adverse effects of crises rather than the causes of crises. Sudden stops would impact many macro variables. One stream has focused on the impacts on dollarization, and the other has focused on the impacts on the financial sectors, especially the links to banking crises. Among the work studying the effects of sudden stops on macroeconomic variables, the results of the negative effects on the output level and hence economic growth are consistent across studies. As a recipient of FPI inflows, the host countries' role in capital flows tends to be passive. Therefore, it has been clear that sudden stops might not be controlled by the host countries.
