The 1990s emerging-markets crises were characterized by sudden reversals in inflows of foreign capital followed by unusually large declines in current account deficits, private expenditures, production, and prices of nontradable goods relative to tradables. This paper shows that these Sudden...

We study the short- and long-run effects of financial integration in emerging economies using a two-sector model with a collateral constraint on external debt and trading costs incurred by foreign investors. The probability of a financial crisis displays overshooting: It rises sharply initially...

The current account reversals, large recessions, and price collapses that define Sudden Stops contradict the predictions of a large class of models in which the current account is a vehicle for consumption smoothing and investment financing. This paper shows that the quantitative predictions of...

An equilibrium model of financial crises driven by Irving Fisher's financial amplification mechanism features a pecuniary externality, because private agents do not internalize how the price of assets used for collateral respond to collective borrowing decisions, particularly when binding...

This paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with the large consumption and current-account reversals and asset-price collapses observed in the "Sudden Stops" of emerging markets crises. Margin requirements set a...

"Liability dollarization,'' namely intermediation of capital inflows in units of tradables into domestic loans in units of aggregate consumption, adds three important effects driven by real-exchange-rate fluctuations that alter standard models of Sudden Stops significantly: Changes on the debt...

Macroprudential policy holds the promise of becoming a powerful tool for preventing financial crises. Financial amplification in response to domestic shocks or global spillovers and pecuniary externalities caused by Fisherian collateral constraints provide a sound theoretical foundation for this...