Do capital controls deflect capital flows?

Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014

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The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).

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Topics:  International finance

Tags:  China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows

Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets

Barry Eichengreen, Poonam Gupta 19 December 2013

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In May 2013, Federal Reserve officials first began to talk of the possibility of the US central bank tapering its securities purchases from $85 billion a month to something lower. A milestone to which many observers point is 22 May 2013, when Chairman Bernanke raised the possibility of tapering in his testimony to Congress. This ‘tapering talk’ had a sharp negative impact on economic and financial conditions in emerging markets.

Three aspects of that impact are noteworthy:

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Topics:  Exchange rates Monetary policy

Tags:  exchange rates, monetary policy, Federal Reserve, emerging markets, capital controls, Macroprudential policies, Capital inflows, currency war, tapering

Capital inflows and booms in asset prices: Going beyond the current account

Eduardo Olaberría 07 December 2013

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For decades, policymakers’ perception has been that large capital inflows can fuel booms in asset prices. If this were true, bonanzas in capital inflows would imply an important risk to financial stability, since booms in asset prices are leading indicators of financial crises. However, as noted by Reinhart and Reinhart (2008: 50), despite being widespread among policymakers, until recently this perception was based mainly on anecdotal evidence.

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Topics:  Financial markets International finance

Tags:  capital flows, asset prices, current account, bubbles, Capital inflows, booms

Low interest rates and housing booms: The role of capital inflows, monetary policy, and financial innovation

Filipa Sá, Pascal Towbin, Tomasz Wieladek 10 March 2011

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The run-up to the recent global financial crisis was characterised by an environment of low interest rates and a rapid increase in housing market activity across OECD countries.

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Topics:  International finance Macroeconomic policy Monetary policy

Tags:  interest rates, house prices, Capital inflows, real estate

The recent surge in capital inflows and policy options for India

Dayanand Arora, Francis Xavier Rathinam , Shuheb Khan 03 July 2010

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Once again, many emerging economies are grappling with a surge in net capital inflows, particularly through increased foreign portfolio investment. And again, managing these volatile capital inflows is back on the policy agenda. This time round, the need for a debate on policy options has gained added fervour because of the changes in the views of the IMF on capital controls. A recent IMF staff position note (Ostry et.al. 2010) concludes:

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Topics:  International finance

Tags:  India, exchange-rate policy, Capital inflows

Managing capital inflows: Emerging Europe is different, again

Johan Mathisen, Srobona Mitra 25 May 2010

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Capital inflows were larger in emerging Europe and fell more severely during the crisis than in other emerging economies (IMF 2010). Prior to the crisis, cross-border loans from Western European parent banks to their emerging European affiliates accounted for most of the difference (Figure 1). The large inflows created macroeconomic and financial sector vulnerabilities – larger current account deficits, rapid credit growth, worse fiscal positions, and heavier indebtedness (often in foreign currencies) of households in a large part of the region.

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Topics:  Europe's nations and regions

Tags:  foreign direct investment, financial regulation, Capital inflows, emerging Europe

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