Financial Crises: Explanations, Types, and Implications; by Stijn Claessens and M. Ayhan Kose; imf working Paper 13/28; January 1, 2013

Sudden stops and balance-of-payments crises  can also be objectively classified. Calvo, 

Izquierdo and Talvi (2004) define systemic sudden stop events as episodes with output 

collapses that coincide with large reversals in capital flows. Calvo, Izquierdo and Mejía 

(2008) expand on these criteria in two ways: one, the period contains one or more year-on-

year fall in capital flows that are at least two standard deviations below its sample mean (this 

addresses the “unexpected” requirement of a Sudden Stop); two, it starts (ends) when the 

annual change in capital flows falls (exceeds) one standard deviation below (above) its mean 

(Mauro and Becker, 2006).  

 

Since methodologies vary, various samples of events follow. Calvo et al. (2004) identified 33 

Sudden Stop events with large and mild output collapses in a sample of 31 emerging market 

countries. While studies use different cutoff criteria (Calvo and Reinhart (1999), Calvo, 

Izquierdo and Loo-Kung (2006), and Milesi-Ferretti and Razin (2000), for example differ), 

                                                 

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 Their comprehensive analysis also includes the 1258-1799 period during which the principal means 

of exchange was metallic coins. During this earlier era, instead of modern inflation and currency 

crises, there were a number of episodes of currency debasements which were associated with a 

reduction in the metallic content of coins in circulation in excess of 5 percent. They also consider the 

introduction of a brand new currency replacing a much-depreciated earlier currency in circulation as 

another form of currency debasement, which has still been practiced in the modern era. 

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the datings of events are very similar. Some studies also require a fall in output, but later 

studies excluded this requirement (since a fall may be endogenous) and replaced it with the 

requirement of large spikes in the Emerging Markets Bond Index (EMBI) spread, indicating 

a shift in the supply of foreign capital (see further Izquierdo, 2012). Cardarelli, Kose and 

Elekdag (2010) consider a large capital inflow episode to end “abruptly” if the ratio of net 

private capital inflows to GDP in the year after the episode terminates is more than 

5 percentage point lower than at the end of the episode – closely following the definition of 

“sudden stops” in the literature. An episode is also considered to finish abruptly if its end 

coincides with a currency crisis.