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Modelling the Global Effects of the COVID-19 Sudden Stop in Capital Flows (N.Y. Fed, 9 min read) Unusually fast outflows of dollar funding from emerging market economies (EMEs) leads to a contraction in their output, and local currency depreciation adversely impacts private-sector balance sheets with dollar debts. The financial stresses in EMEs, in turn, can also spill back to the US economy, through both trade and financial channels, and US GDP can fall up to 1.5%.
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