Working Paper: NBER ID: w11492
Authors: Guillermo A. Calvo; Alejandro Izquierdo; Rudy Lookung
Abstract: Sudden Stops are associated with increased volatility in relative prices. We introduce a model based on information acquisition to rationalize this increased volatility. An empirical analysis of the conditional variance of the wholesale price to consumer price ratio using panel ARCH techniques confirms the relevance of Sudden Stops and potential balance-sheet effects as key determinants of relative-price volatility, where balance-sheet effects are captured by the interaction of a proxy for potential changes in the real exchange rate (linked to the degree of external leverage of the absorption of tradable goods) and a measure of domestic liability dollarization.
Keywords: No keywords provided
JEL Codes: F31; F32; F34; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sudden stops (F32) | increased volatility in relative prices (E39) |
| balance sheet effects (G32) | increased volatility in relative prices (E39) |
| sudden stops (F32) | increased volatility in WPI to CPI ratio (C43) |
| balance sheet effects (G32) | increased volatility in WPI to CPI ratio (C43) |
| sudden stops (F32) | conditional variance of WPI to CPI ratio increases (C43) |
| balance sheet effects (G32) | conditional variance of WPI to CPI ratio increases (C43) |
| sudden stops (F32) | significant impact on relative price volatility (F69) |
| balance sheet effects (G32) | significant contribution to relative price volatility (E39) |