Capital inflows, crisis and recovery in small open economies

Hamid Raza, Gylfi Zoega, Stephen Kinsella

Research output: Contribution to journalJournal articleResearchpeer-review

4 Citations (Scopus)

Abstract

We compare two small open economics, Iceland and Ireland, that experienced a capital inflow through their banking systems in the period preceding the 2008 financial crises but differ in their currency arrangements. Both countries have mostly recovered from their respective crises, but the differences in the way their economies adjusted are interesting. The evidence suggests that changes in the real exchange rate served as the adjusting mechanism for Iceland's current account while in Ireland domestic demand compression served as the main adjustment mechanism. We also explore the adjustment to the crisis in three other Eurozone economies and find that they were similar to the one in Ireland.
Original languageEnglish
JournalFinance Research Letters
Volume27
Pages (from-to)273-282
Number of pages10
ISSN1544-6123
DOIs
Publication statusPublished - 2018

Keywords

  • Demand compression
  • Real exchange rates
  • Sudden stop

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