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All Rights Reserved.",{"enabled":28,"complete":28,"capacity":233,"label":44,"stale":35,"items":234},4,[235,241,245,249],{"contentId":236,"contentType":237,"label":238,"href":239,"source":240},"3IO50DiUrQm8ML20joajCL","article","Defense Innovation at Darden","\u002Farticles\u002Fthe-business-of-national-defense-is-changing-so-is-the-classroom","algolia",{"contentId":242,"contentType":237,"label":243,"href":244,"source":240},"4mDfyVZuEtdDW9g96wu1rU","On Academic Freedom","\u002Farticles\u002Fon-academic-freedom",{"contentId":246,"contentType":237,"label":247,"href":248,"source":240},"2GBmzAadCKzwTWJggqmArB","Christopher Fuller Named CMCO","\u002Farticles\u002Fchristopher-fuller-named-chief-marketing-and-communications-officer-at-uva-darden",{"contentId":250,"contentType":237,"label":251,"href":252,"source":240},"5QtyLWjq3hauPenG5pGTED","Alumni Career Advice","\u002Farticles\u002Fin-uva-dardens-classroom-building-six-alumni-put-career-advice-on-the-wall",{"path":254,"template":255,"content":256,"context":679},"\u002Farticles\u002Ftool-sudden-stops","articlePage",{"id":257,"title":258,"slug":259,"path":254,"modifiedAt":260,"summary":261,"publishedDate":266,"topics":269,"authors":272,"insightsFrom":284,"topper":310,"bodyBlocks":324,"outro":627,"seo":672},"7qOeRTvkorNGRaN6fXzWgW","Can Economic Troubles Be Better Predicted? A New Tool Says Yes.","tool-sudden-stops","2026-09-23T12:01:56.700Z",{"plainText":262,"inlines":263},"KF* is a tool developed by economists at UVA Darden to estimate the natural level of capital inflows a country should expect to receive. By comparing actual inflows to this benchmark, KF* helps spot early signs of financial risks, like “sudden stops,” and gives policymakers and investors a clearer read on the stability of capital flows.",[264],{"type":265,"value":262},"text",{"display":267,"dateTime":268},"21 April 2025","2025-04-21",[270],{"id":271,"label":85,"href":86},"global-economies-markets",[273],{"id":274,"name":275,"title":276,"href":277,"profileType":278,"image":279},"2KGmVfjHQigGuWjTI4aCKw","Lauren Foster","Senor Director of Communications","\u002Fpeople\u002Flauren-foster","person",{"src":280,"alt":275,"aspectRatio":180,"width":181,"height":181,"bynderDat":281},"https:\u002F\u002Fimages.darden.virginia.edu\u002Ftransform\u002Fsquare-medium\u002F9f9f0399-c2e9-4dc7-91da-b1effb67f450\u002FLauren-Foster",{"baseUrl":18,"assetId":282,"name":283,"preset":185},"9f9f0399-c2e9-4dc7-91da-b1effb67f450","Lauren-Foster",[285,298],{"id":286,"name":287,"title":288,"href":289,"profileType":290,"image":291,"bio":297},"6ryyUIJwojy4VV9paweP5R","Francis E. Warnock","James C. Wheat, Jr. Professor of Business Administration","\u002Fexpert\u002Fdirectory\u002Ffrancis-e-warnock","faculty",{"src":292,"alt":293,"aspectRatio":180,"width":181,"height":181,"bynderDat":294},"https:\u002F\u002Fimages.darden.virginia.edu\u002Ftransform\u002Fsquare-medium\u002F4794f6fd-8304-454e-b7e5-3dfe4d07bfd5\u002FFrank-Warnock-Preferred","Frank Warnock Preferred",{"baseUrl":18,"assetId":295,"name":296,"preset":185},"4794f6fd-8304-454e-b7e5-3dfe4d07bfd5","Frank-Warnock-Preferred","Warnock is an expert on international capital flows and financial sector development. 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At times, much of that movement is consistent and relatively predictable. Cash tends to migrate toward economies that promise higher growth and better returns. ",[],{"type":335,"content":341},[342],{"type":265,"value":343,"marks":344},"But over the past few decades, economists have grown accustomed to what’s known in the trade as “sudden stops”— abrupt halts in capital flows that trigger instability and financial crises. ",[],{"type":335,"content":346},[347,350,355],{"type":265,"value":348,"marks":349},"That was the case during the Asian financial crisis of 1997-1998 and again in the global financial crisis (GFC) of 2008-2009. 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Economists at the University of Virginia’s Darden School of Business believe they can — thanks to a new tool: ",[],{"type":265,"value":364,"marks":365},"KF*",[366],"bold",{"type":265,"value":27,"marks":368},[],{"type":335,"content":370},[371],{"type":265,"value":372,"marks":373},"The Big Idea",[366],{"type":335,"content":375},[376],{"type":265,"value":377,"marks":378},"Francis E. Warnock, the James C. Wheat Jr. Professor of Business Administration at UVA Darden, says capital flows — specifically, gross portfolio flows, or inflows into a country’s stock and bond markets — fluctuate around a natural level.",[],{"type":335,"content":380},[381,384,387,390,393],{"type":265,"value":382,"marks":383},"Together with co-authors Veronica Cacdac Warnock, a professor of practice and Batten Institute Fellow at Darden, and John D. 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(See Professor Frank Warnock’s ",[],{"type":351,"value":402,"href":403,"external":28,"marks":404},"2021 presentation to the Central Bank of Chile","https:\u002F\u002Fwww.google.com\u002Fsearch?sca_esv=b6fb1ac6b7a40b74&rlz=1C5GCEM_enUS1122US1124&sxsrf=AHTn8zrGCgjFVrk5QvoR6xPZBt3YDr_e1Q:1744898637016&q=KF*+and+Warnock&udm=7&fbs=ABzOT_CWdhQLP1FcmU5B0fn3xuWpA-dk4wpBWOGsoR7DG5zJBnsX62dbVmWR6QCQ5QEtPRqut5gkyra9fZFbsKm1oGezZfNjBY6JC6SkJAVAOI0b5CsapIcNDC3CIOSVGb5pDJnvaDBV6lWSpY5E2wxgZzrkXalu80uOY_e8XXgkMygvMBqwPOEgIqQSHrDce0QWSpCKVluLj6UL7-OYkp3g8b-Q1-cSJw&sa=X&ved=2ahUKEwi3oLb7nd-MAxXiEGIAHXqKFBIQtKgLegQIEBAB&biw=1176&bih=561&dpr=2.5#fpstate=ive&vld=cid:976d1dd9,vid:pIx4hLMxePA,st:0",[],{"type":265,"value":406,"marks":407},".) ",[],{"type":335,"content":409},[410],{"type":265,"value":411,"marks":412},"How KF* Works",[366],{"type":335,"content":414},[415,417],{"type":265,"value":385,"marks":416},[366],{"type":265,"value":418,"marks":419},"estimates how much foreign portfolio investment a country can expect over time, based on:",[],{"type":421,"items":422},"unorderedList",[423,435],{"blocks":424},[425,430],{"type":335,"content":426},[427],{"type":265,"value":428,"marks":429},"Total world savings, or the global pool of new money available for investment each period. (",[],{"type":335,"content":431},[432],{"type":265,"value":433,"marks":434},"“World” here is the rest of the world, or ROW. That is, the amount of savings generated by the world, excluding your country).",[],{"blocks":436},[437],{"type":335,"content":438},[439],{"type":265,"value":440,"marks":441},"A country’s share of global bond and stock portfolios (how big a slice of the global investment pie typically goes there).",[],{"type":335,"content":443},[444],{"type":265,"value":445,"marks":446},"The formula multiplies a country’s share of global investment flows by the current global savings pool — generating a benchmark that shifts in real time as global or local conditions change.",[],{"type":335,"content":448},[449,452,454,457,459],{"type":265,"value":450,"marks":451},"When global savings increase or a country becomes more attractive to investors, ",[],{"type":265,"value":364,"marks":453},[366],{"type":265,"value":455,"marks":456}," rises. When those conditions reverse, ",[],{"type":265,"value":364,"marks":458},[366],{"type":265,"value":460,"marks":461}," falls.",[],{"type":335,"content":463},[464],{"type":265,"value":465,"marks":466},"What KF* Tell Us",[366],{"type":335,"content":468},[469,471],{"type":265,"value":364,"marks":470},[366],{"type":265,"value":472,"marks":473}," serves as a “normal level” against which actual capital inflows can be measured. In practice, real-world capital flows fluctuate around this benchmark — sometimes running above it, sometimes below.",[],{"type":335,"content":475},[476,479,481],{"type":265,"value":477,"marks":478},"This variance from the benchmark provides valuable insights. When actual inflows significantly exceed ",[],{"type":265,"value":364,"marks":480},[366],{"type":265,"value":482,"marks":483},", it often signals an unsustainable boom — a situation where investment capital may abruptly reverse direction later. Conversely, when inflows fall below the KF* benchmark, it typically indicates that flows are likely to recover, gravitating back toward that normal level.",[],{"type":335,"content":485},[486,489,491],{"type":265,"value":487,"marks":488},"Before ",[],{"type":265,"value":364,"marks":490},[366],{"type":265,"value":492,"marks":493},", countries lacked a reliable way to assess whether their current capital inflows represented a new normal or a temporary aberration, making it harder for policymakers to respond appropriately.",[],{"type":335,"content":495},[496],{"type":265,"value":497,"marks":498},"Predicting Sudden Stops ",[366],{"type":335,"content":500},[501,503,506,508],{"type":265,"value":364,"marks":502},[366],{"type":265,"value":504,"marks":505}," provides a valuable framework for forecasting capital movement trends, particularly in predicting the dreaded “sudden stops” that can destabilize economies. When a country experiences inflows significantly exceeding its ",[],{"type":265,"value":364,"marks":507},[366],{"type":265,"value":509,"marks":510}," benchmark, warning lights should flash — this elevation indicates a heightened risk of a sudden stop, where foreign investment abruptly plummets, often coinciding with local stock market declines.",[],{"type":335,"content":512},[513,516,519,522,524],{"type":265,"value":514,"marks":515},"Conversely, nations with inflows running below their level face substantially lower risks of dramatic crashes, simply because there isn't a major overshoot requiring correction. This differential, or the ",[],{"type":265,"value":517,"marks":518},"“KF* gap”",[366],{"type":265,"value":520,"marks":521}," — the difference between actual inflows and ",[],{"type":265,"value":364,"marks":523},[366],{"type":265,"value":525,"marks":526}," — offers a useful analytical tool for identifying vulnerable economies versus those positioned for potential rebounds.",[],{"type":335,"content":528},[529],{"type":265,"value":530,"marks":531},"KF* in Action: Lessons from the GFC and COVID-19",[366],{"type":335,"content":533},[534,537,539],{"type":265,"value":535,"marks":536},"The 2008 Global Financial Crisis provides a compelling case study for ",[],{"type":265,"value":364,"marks":538},[366],{"type":265,"value":540,"marks":541},"'s predictive power. ",[],{"type":335,"content":543},[544,547,549,552,554,557,559],{"type":265,"value":545,"marks":546},"Before the crisis, the warning signs were clearly visible through the ",[],{"type":265,"value":364,"marks":548},[366],{"type":265,"value":550,"marks":551}," lens: many countries had capital flows well above their ",[],{"type":265,"value":364,"marks":553},[366],{"type":265,"value":555,"marks":556}," benchmarks. Once the crisis hit, those with the largest positive gaps — those furthest above their ",[],{"type":265,"value":364,"marks":558},[366],{"type":265,"value":560,"marks":561}," levels — experienced the sharpest reversals.",[],{"type":335,"content":563},[564,567,569],{"type":265,"value":565,"marks":566},"The contrasting scenario played out during the 2020 pandemic shock. Then, most countries did not have excessive inflows relative to ",[],{"type":265,"value":364,"marks":568},[366],{"type":265,"value":570,"marks":571}," — and the model accurately signaled that a wave of sudden stops was unlikely. Flows recovered relatively quickly after the initial disruption.",[],{"type":335,"content":573},[574],{"type":265,"value":575,"marks":576},"Implications for Policymakers, Investors and Researchers",[366],{"type":335,"content":578},[579,582,584],{"type":265,"value":580,"marks":581},"For governments and central banks, ",[],{"type":265,"value":364,"marks":583},[366],{"type":265,"value":585,"marks":586}," is a diagnostic tool, helping them determine whether current portfolio inflows are part of a sustainable trend or a short-term spike. That distinction affects whether long-term policy shifts are warranted.",[],{"type":335,"content":588},[589,592,594],{"type":265,"value":590,"marks":591},"For investors, ",[],{"type":265,"value":364,"marks":593},[366],{"type":265,"value":595,"marks":596}," can flag when inflows into a market reflect strong fundamentals — or unsustainable bubbles.",[],{"type":335,"content":598},[599,602,604],{"type":265,"value":600,"marks":601},"For economists, ",[],{"type":265,"value":364,"marks":603},[366],{"type":265,"value":605,"marks":606}," offers a useful framework for modeling global capital movements and improving forecasts of financial stability.\n",[],{"type":335,"content":608},[609,613,617,620,624],{"type":265,"value":610,"marks":611},"This article is based on the following papers co-authored by Darden professors Francis E. Warnock and Veronica Cacdac Warnock, along with John D. Burger of Loyola University Maryland’s Sellinger School of Business: “",[612],"italic",{"type":351,"value":614,"href":615,"external":28,"marks":616},"A Natural Level of Capital Flows","https:\u002F\u002Fwww.sciencedirect.com\u002Fscience\u002Farticle\u002Fpii\u002FS0304393222000769?via%3Dihub",[612],{"type":265,"value":618,"marks":619},"” (2022), published in Journal of Monetary Economics; “KF* and Portfolio Flows around Global Shocks” (draft 2025); and “",[612],{"type":351,"value":621,"href":622,"external":28,"marks":623},"Benchmarking Portfolio Flows","https:\u002F\u002Flink.springer.com\u002Farticle\u002F10.1057\u002Fs41308-018-0062-8",[612],{"type":265,"value":625,"marks":626},"” (2018), published in IMF Economic Review.",[612],{"tags":628,"pressContact":633,"bios":660},{"topics":629,"storyType":631},[630],{"id":271,"label":85,"href":86},{"label":632,"href":126},"Article",{"id":634,"heading":635,"body":636,"image":646,"action":654,"contactLabel":656,"contactId":274,"contactName":275,"contactTitle":276,"contactEmail":657},"1JXqEbL3azVV5umnM8ChNj","About UVA Darden School of Business",{"blocks":637},[638,642],{"type":335,"content":639},[640],{"type":265,"value":641},"The University of Virginia Darden School of Business prepares responsible global leaders through unparalleled transformational learning experiences.",{"type":335,"content":643},[644],{"type":265,"value":645},"Darden's graduate degree programs and Executive Education & Lifelong Learning programs offered by the Darden School Foundation set the stage for a lifetime of career advancement and impact.",{"src":647,"alt":648,"aspectRatio":649,"width":650,"height":651,"bynderDat":652},"https:\u002F\u002Fimages.darden.virginia.edu\u002Ftransform\u002Fc88de114-fc91-4aa8-b801-2e987f7a4a22\u002FDarden_Spring_Environmental_Spring_25_Saunders_Hall_20","Darden_Spring_Environmental_Spring_25_Saunders_Hall_20","8354 \u002F 5569",8354,5569,{"baseUrl":18,"assetId":653,"name":648},"c88de114-fc91-4aa8-b801-2e987f7a4a22",{"label":655,"href":26,"external":35,"openInNewWindow":35},"Learn More","Press Contact",{"label":658,"href":659},"fosterl@darden.virginia.edu","mailto:fosterl@darden.virginia.edu",[661,667],{"id":286,"name":287,"title":288,"body":297,"image":662,"action":664},{"src":292,"alt":293,"aspectRatio":180,"width":181,"height":181,"bynderDat":663},{"baseUrl":18,"assetId":295,"name":296,"preset":185},{"label":665,"href":289,"accessibleLabel":666},"Read more","Read more about Francis E. Warnock",{"id":299,"name":300,"title":301,"body":309,"image":668,"action":670},{"src":304,"alt":305,"aspectRatio":180,"width":181,"height":181,"bynderDat":669},{"baseUrl":18,"assetId":307,"name":308,"preset":185},{"label":665,"href":302,"accessibleLabel":671},"Read more about Veronica Cacdac Warnock",{"title":258,"description":262,"image":673},{"src":674,"alt":316,"aspectRatio":675,"width":676,"height":677,"bynderDat":678},"https:\u002F\u002Fimages.darden.virginia.edu\u002Ftransform\u002Fwidescreen-large\u002F8c805295-e453-4c5a-accf-75a287b92754\u002FCan-Economic-Troubles-Be-Better-Predicted-A-New-Tool-Says-Yes?io=transform%3Afill%2Cwidth%3A1200%2Cheight%3A630&quality=75","1200 \u002F 630",1200,630,{"baseUrl":18,"assetId":321,"name":322,"preset":323},{"canonicalPath":254,"identity":680},{"id":257,"contentType":237,"title":258,"path":254,"publishedAt":268,"modifiedAt":260,"topics":681,"authors":683,"eligibility":685},[682],{"id":271,"label":85},[684],{"id":274,"label":275},{"searchEngines":28,"followLinks":28,"internalSearch":28}]