Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246174 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2597
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper analyses the incidence and severity of sudden stops in euro area countries before and after the introduction of the ECB's asset purchase programmes. We define sudden stops as abrupt declines in private net financial inflows, i.e. total flows adjusted for EU and IMF loans and changes in TARGET2 balances. Distinguishing between mild and severe sudden stops, we document that sudden stops were overall more frequent and more severe in euro area countries compared to other OECD economies over the period 1999-2020. On the basis of a multinomial logit model, we find that the susceptibility of euro area countries to severe sudden stops mainly reflects domestic fundamentals whereas there is no clear evidence of an adverse direct effect of being part of the euro area. On the contrary, TARGET2 appears to act as an "automatic stabiliser", counteracting sudden stops in private financial i nflows. Moreover, our econometric analysis suggests that the asset purchase programmes implemented by the ECB since 2015 have overall almost halved the risk of severe sudden stops in euro area countries. We find tentative evidence that this effect operates through confidence channels.
Subjects: 
Financial flows
sudden stops
monetary policy
ECB asset purchase programmes
JEL: 
F21
F31
F32
F41
F45
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4820-3
Document Type: 
Working Paper

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