Intolerable Surges, Exchange Rate Regimes and Sudden Stops of Capital Inflows

This chapter investigates the effect of the exchange regime on the likelihood of sudden stops. A panel probit analysis is conducted on the data of 43 developing countries from 1980 to 2010. The test investigates the interaction of surges and the exchange regime and their potential impact of the sudden stops of capital inflow. Results support the hypothesis that the peg regimes increase the probability of sudden stops. In addition the surges accompanied by the fixed regime are more likely to be associated with a sudden stop. The principle result of this test is that the crisis of sudden stops is more predictable in the case of the flexible exchange regime than in the peg regimes.