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- Sudden stops: I define the sudden stop as a big current account reversal happening amid of deep economic recession. This definition of sudden stop is similar to that in Calvo et al. (2004). Specifically, I count the sample-episodes that satisfying the following two criterion as sudden stop periods: 1. Year-To-Year current account reversal is larger that 1.5 standard deviations of the current account to GDP ratio; 2. The real GDP is at least 1.5 standard deviations below its long-run trend.
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- The Kleinpergan-Paap rk F statistic is used to test whether we have a weak instrument. Following Ramey & Zubairy (2014), a statistic greater than 23 leads us to reject the null hypothesis and conclude the instrument in relevant. The result is shown in appendix E.
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- To compare the fiscal policy effect during the fixed sudden stop episodes, for each identified sudden stop period, I create a 6-quarters event window with 2 periods before and 4 periods after it. This clear-cut way to define sudden stop event generally captures the spirit of “big and sudden†capital flow stop as in Calvo et al. (2004) and at the same time makes it suitable to do serious empirical analysis. Different from Calvo et al. (2004)’s definition, my sudden stop definition is also based on economic cycle of GDP, which makes our identified sudden stop dates not necessarily overlap. But I find most of the identified sudden stop episodes in their paper also belong to my sample.
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