# **Appendix C.  Sensitivity Analysis**

We can further compare the impact of global and domestic variables during the sudden stops and tranquil periods in the two halves of the sample period as per the equation below.

External or Domestic Factor k,it = αi + βk Sudden Stopit + γk Dummy for 2003-2014 + τ Sudden Stopit * Dummy for 2003-2014 + εit Regressions are estimated with country fixed effects and robust standard errors. The average value of each variable in non-crisis years prior to 2003 is given in row (i); variable averages during sudden stops until 2002 is given by (i) + (ii). Average value in tranquil years post 2002 is given by (i) +(iii). variable averages during sudden stop after 2003 is given by (i) +(ii)+(iii) +(iv). A significant coefficient in (iv) indicates that the (Average value of variable in SS -lagged value in tranquil years)2003-2014 - (Average value of variable in SS-lagged value in nonstop years)1991-2002 is significant] This is the difference in difference estimate of the change in variables across sudden stops in two subperiods compared to their relative tranquil averages.

Differences are evident across subperiods. A high U.S. fed funds rate is more strongly associated with sudden stops in the first subperiod than the second. The disproportionate importance of U.S. interest rates in triggering sudden stops – given the importance of dollar funding in global financial markets – is well known. Less obvious, especially given all the talk surrounding “tapering,” is that this role appears to have diminished in the 2000s. The VIX is significantly higher during sudden stop episodes only in the second superiod, pointing to the growing importance of global as opposed to U.S. and financial as opposed to monetary factors. Whereas the external factors associated with the likelihood of sudden stops have changed over time, there is less evidence of such changes in the associated domestic factors. Two exceptions are the ratio of reserves to GDP (which was lower prior to sudden stop episodes in the 1990s compared to tranquil periods, but not in the 2000s) and foreign currency positions (which similarly were lower in sudden stop episodes in the 1990s but not subsequently).

**Table C1.  External and (lagged) domestic variables in sudden stop and normal years**

|Dependent<br>Variables|(1)<br>Fed Fund<br>Rate (%)|(2)<br>VIX, Log|(3)<br>Capital<br>Flows/GDP|(4)<br>% change in real<br>exchange rate|(5)<br>Domestic<br>credit/|(6)<br>Reserve<br>/GDP|(7)<br>Foreign currency<br>position|
|---|---|---|---|---|---|---|---|
|Sudden stop (ii)|0.63***|0.12|0.86***|-0.41|2.64|-1.19|-0.04*|
||[3.32]|[1.56]|[3.62]|[1.53]|[0.91]|[1.29]|[1.75]|
|Sudden Stop in 2003-2014 (iv)|-1.25***|0.51***|-0.23|0.071|0.34|2.62*|0.057***|
||[3.03]|[4.50]|[0.71]|[0.21]|[0.10]|[1.99]|[2.83]|
|Dummy 2003 (iii)|-2.63***|-0.16***|0.13|-1.23***|11.8***|6.36***|0.19***|
||[35.43]|[6.00]|[1.00]|[5.92]|[3.34]|[6.18]|[5.80]|
|Constant (i)|4.38***|3.01***|0.73***|0.39***|37.94***|10.15**<br>|-0.22***|
||[100.55]|[186.3]|[9.63]|[3.10]|[17.63]|*<br>[16.42]|[11.02]|
|Observations|2,257|2,257|2,209|2,229|2,194|2,224|1,539|
|R-squared|0.336|0.098|0.015|0.084|0.14|0.323|0.419|
|Number of countries|34|34|34|34|34|34|27|

Dependent variables are averages of eight previous quarters, except VIX and federal fund rate which are current quarter values. Capital flows are portfolio and other flows by nonresidents as % of GDP; real exchange rate is in percent change; an increase denotes a depreciation. Robust t-statistics in parentheses. ***,** and * indicate significance at 1, 5, and 10% levels.

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