The purpose of this paper is to consider the transition of surge episodes to stop episodes and differentiates between two types of surges, namely, surges that end in stops and surges that end in normal episodes.
Previous studies show that surges end in output contractions, crises, and reversals of capital inflows. However, when one looks closely at the data, more than half of surges end in normal episodes at least four quarters following the last surge quarter.
The results show the varying significance of global and domestic factors correlated with the occurrence of surges leading to stops and the size of gross inflows during these two types of surges.
The findings highlight the importance of differentiating between these two types of surges as it leaves scope for policy design in safeguarding financial stability amidst surging capital inflows.
