A new taxonomy of Sudden Stops: Which Sudden Stops should countries be most concerned about?

This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is detailed over time and we relate the type of Sudden Stop to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are associated with larger falls in output than those where Sudden Starts in Gross Outflows dominate. The paper further discusses the mechanisms that might result in Sudden Stops in Gross Flows that are not Sudden Stops in Net Flows such that purchases and sales in financial assets or liabilities do not require a sharp current account adjustment. Still, it is found that Sudden Stops in Gross Inflows that do not provoke a sharp contraction in Net Flows may also be disruptive, particularly Sudden Stops that are driven by “other flows” - which include banking flows. The results suggest new avenues for research and future policy analysis.