Capital controls in the 21st century

Barry Eichengreen, Andrew K Rose 05 June 2014

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Capital controls are back. The IMF (2012) has softened its earlier opposition to their use. Some emerging markets – Brazil, for example – have made renewed use of controls since the global financial crisis of 2008–2009. A number of distinguished economists have now suggested tightening and loosening controls in response to a range of economic and financial issues and problems. While the rationales vary, they tend to have in common the assumption that first-best policies are unavailable and that capital controls can be thought of as a second-best intervention.

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Topics:  International finance

Tags:  IMF, capital flows, global financial crisis, capital controls, capital, Macroprudential policy

Who is to blame for the credit crunch: foreign ownership or foreign funding?

Erik Feyen, Raquel Letelier, Inessa Love, Samuel Munzele Maimbo, Roberto Rocha 15 March 2014

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From boom to crunch

Although most developing countries around the world experienced a severe contraction of bank credit during the recent global financial crisis, the Eastern Europe and Central Asia (ECA) region was disproportionately hit after it had experienced very high credit growth (Figure 1).

Figure 1. Banking system trends in ECA

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Topics:  Financial markets Global crisis International finance

Tags:  Credit crunch, global financial crisis, banking, Eastern Europe, cross-border banking, credit growth, Central Asia

Remittances and vulnerability in developing countries: Results from a new dataset on remittances from Italy

Giulia Bettin, Andrea F Presbitero, Nikola Spatafora 10 February 2014

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Remittances from migrant workers currently represent one of the most important financial flows to developing countries. They can play an important role in pulling millions of families out of poverty. It is therefore critical to identify the key factors affecting remittances, as well as the barriers to these flows (Beck and Martinez Peria 2009 ). In particular, it is important to understand how remittances depend on macroeconomic conditions in the migrants’ host country and country of origin, and how they were affected by the global financial crisis.

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Topics:  Development Migration

Tags:  Italy, migration, global financial crisis, financial development, Remittances

Tracking the causes of Eurozone external imbalances: New evidence

Jose Luis Diaz Sanchez, Aristomene Varoudakis 06 February 2014

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The Eurozone sovereign debt crisis, triggered by the 2008–09 global financial crisis, exposed macroeconomic imbalances in member countries that had accrued gradually following the advent of the euro in 1999. The growing current-account deficits in the Eurozone periphery and surpluses in the core were a main symptom of these imbalances (Figure 1).1 These patterns of intra-Eurozone current-account imbalances led to the accumulation of large external debts in the Eurozone periphery, matched by growing claims held by commercial banks in the core.

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Topics:  International finance

Tags:  competitiveness, eurozone, global imbalances, global financial crisis, European sovereign debt crisis

Turmoil in emerging markets: What’s missing from the story?

Kristin Forbes 05 February 2014

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Emerging markets are going through another period of volatility – and the most popular boogeyman is the US Federal Reserve.

The basic storyline is that less accommodative US monetary policy has caused foreign investors to withdraw capital from emerging markets, causing currency depreciations, equity declines, and increased borrowing costs. In many cases, these adjustments will slow growth and increase the risk of some type of crisis.

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Topics:  International finance

Tags:  Federal Reserve, capital flows, emerging markets, global financial crisis, tapering

How did the Global Financial Crisis misalign East Asian currencies?

Eiji Ogawa, Zhiqian Wang 19 January 2014

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Some East Asian countries experienced a serious currency crisis in 1997. The crisis was blamed on both the de facto US dollar peg system and double mismatches of domestic financial institutions’ balance sheets in terms of currency and maturity. Following the Asian currency crisis, recognition of the importance of regional monetary cooperation has steadily grown. Specifically, the monetary authorities of most East Asian countries have come to perceive the importance of monitoring intra-regional exchange rates.

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Topics:  Exchange rates International finance

Tags:  exchange rates, financial crisis, global financial crisis, currency crisis, East Asian financial crisis

Why fiscal sustainability matters

Willem Buiter 10 January 2014

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Does fiscal sustainability matter only when there is a fiscal house on fire, as was the case with the Greek sovereign insolvency in 2011–12? Far from it.

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Topics:  Financial markets Global crisis International finance Macroeconomic policy

Tags:  eurozone, sovereign debt, capital flows, financial crisis, credit booms, fiscal policy, emerging markets, global financial crisis, banking, banks, Eurozone crisis, Currency wars, fiscal sustainability, banking union, sovereign debt restructuring, balance-sheet recession

The next sudden stop

Sebnem Kalemli-Ozcan 07 January 2014

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The ominous facts are well known – the strongest predictors of financial crises are domestic credit booms and external debts (Reinhart and Rogoff 2011). In emerging markets, credit booms are generally preceded by large capital inflows (Reinhart and Reinhart 2010). Many high-growth emerging markets have been receiving capital inflows for the last five years as the developed economies have been attending to their wounds from the Global Financial Crisis. Now the tide is reversing. Emerging markets are experiencing slowdowns in growth and widening current-account deficits.

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Topics:  Financial markets International finance

Tags:  capital flows, emerging markets, global financial crisis, sudden stops, Turkey, tapering, liability dollarisation

Policymaking in crises: Pick your poison

Kristin Forbes, Michael W Klein 24 December 2013

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In 2010, the Brazilian finance minister Guido Mantenga declared a ‘currency war’ because of the harmful effects of the strengthening of the real. He blamed the currency’s appreciation on easy money in advanced countries, and to a lesser extent on reserve accumulation in some emerging markets. More recently, concerns were raised by slides in the values of the Indian rupee – which lost 18% of its value against the dollar between February and August – and by the fall in the value of the Indonesian rupiah – which has lost almost a quarter of its value against the US dollar in 2013.

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Topics:  Exchange rates Macroeconomic policy

Tags:  exchange rates, foreign exchange reserves, India, Indonesia, global financial crisis, capital controls, Brazil, currency war

Single supervision and resolution rules: Is ECB independence at risk?

Donato Masciandaro, Francesco Passarelli 21 December 2013

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A successful transition to a European Banking Union requires robust and credible ‘Chinese walls’ between the ECB’s role as monetary authority and any responsibility in the Single Supervisory Mechanism or in the resolution rules. Otherwise, the ECB’s independence would be at risk, given that monetary policy would likely have larger distributional effects.

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Topics:  EU institutions Financial markets

Tags:  ECB, Central Banks, central bank independence, global financial crisis, banking regulation, bank resolution, banking union

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