This refers to the abrupt stop in the flow of foreign capital into an economy, which imperils its ability to pay for its external trade and financial needs. The sudden stop usually comes in the aftermath of a financial or economic crisis that causes investors to turn cautious about investing in an economy, which in turn further aggravates the severity of the ongoing crisis. It is emerging market economies that have generally been the victims of sudden stops when foreign investors as a whole abruptly stop the supply of capital. The term’s origin is attributed to the 1995 paper “Currency Crises and Collapses” authored by Rudiger Dornbusch and others.
