Sudden stop describes a swift reversal of international capital flows; either a stopping of capital inflows or sharp capital outflows. The sudden stop problem is characteristic to emerging market economies that tends to depend on capital inflows. The problem is severe in countries which accept hot money or short term private capital which is quickly mobile. A major feature of sudden stop is that the capital outflows are followed by currency crisis (steep depreciation of the currency), fall in investment, output, employment and economic growth in the host countries. Sudden stop tells the story of agony of small developing countries that are susceptible to capital flow reversals.
