**Table 2** reports the probability of having a currency or banking crisis in period t and period t+1 when a net or gross reversal takes place in period t. It is interesting to show that when there is a net reversal, a currency crisis is more likely to take place simultaneously for developing countries —and that likelihood is even higher among emerging markets. However, if it occurs in period t+1, it is more likely to happen in industrial countries. We should note that the frequency is smaller among the latter group. The likelihood of having currency crisis either in period t or t+1 is smaller in the event of gross reversals (vis-à-vis a net reversal), and that likelihood is uniformly smaller among industrial nations.

Finally, the probability of having a banking crisis (either in period t or t+1) is smaller for industrial countries than for developing countries regardless of either a gross or net reversal in capital flows taking place in period t. Emerging markets, on average, are more likely to have a banking crisis after sudden stop episodes than developing countries as a whole. This result may underline the higher exposure of emerging markets to cross-border asset trading.

# **3.2 Sources of Data for the Determinants of Sudden Stops**

We describe the sources of data used to approximate the set of forcing variables that may affect the likelihood of sudden stops (as measured by drops in the financial account) as well as inflow- and outflow-driven sudden stops. Our choice of explanatory variables follows the empirical literature on the determinants of (net) sudden stops ( _e.g._ Calvo, Izquierdo and Mejia, 2004), the determinants of currency crisis ( _e.g._ Frankel and Rose, 1996; Berg and Pattillo, 1999; Milesi-Ferretti and Razin, 2000), current account reversals and capital flow contractions ( _e.g._ Milesi-Ferretti and Razin, 1998; Edwards, 2005, 2007).

Economic performance, as measured by the growth rate of GDP, is assumed to reduce the likelihood of sudden stops taking place. GDP data in US dollars at constant prices, obtained from the World Bank’s World Development Indicators (WDI), is used to compute the growth rate. We also include indicators of the soundness and stability of the macroeconomic policy framework as determinants of sudden stops. It has been argued that sudden stops are less likely to take place in countries with sounder and more stable macroeconomic policy framework. Hence, we include indicators of monetary stability, exchange rate flexibility and the health of external and fiscal positions.

Monetary stability is proxied by the rate of inflation, as measured by the rate of change of the consumer price index, and its data is obtained from the International Monetary Fund’s International Financial Statistics (IFS). We include not only the rate of inflation but we also include the inflation rate interacted with a dummy that takes the value of 1 when CPI inflation exceeds 50% per year. The latter variable captures high inflation. Exchange rate flexibility is measured by the coarse classification of exchange rate regimes developed by Reinhart and

> similar outcomes for other financial institutions (as in Thailand 1996–97). We rely on existing studies of banking crises and on the financial press.

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