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Tools for managing financial-stability risks from capital inflows

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  • Ostry, Jonathan D.
  • Ghosh, Atish R.
  • Chamon, Marcos
  • Qureshi, Mahvash S.

Abstract

We examine whether macroprudential policies and capital controls can enhance financial stability in the face of the risks typically associated with large capital inflows. We construct new indices of foreign currency (FX)-related prudential measures, domestic prudential measures, and financial-sector specific capital controls for 51 emerging market economies over the period 1995–2008. Our results indicate that both capital controls and FX-related prudential measures are associated with a lower proportion of FX lending in total domestic bank credit, and with a lower proportion of portfolio debt in total external liabilities. Other prudential policies appear to help restrain the intensity of aggregate credit booms. Experience from the global financial crisis suggests that prudential and capital control policies in place during the boom enhanced economic resilience during the bust.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 88 (2012)
Issue (Month): 2 ()
Pages: 407-421

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Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:407-421

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Capital inflows; Capital controls; Prudential tools; Currency mismatches;

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References

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Citations

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Cited by:
  1. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.
  2. Andreas Hoffmann & Axel Loeffer, 2014. "Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets," ICER Working Papers 01-2014, ICER - International Centre for Economic Research.
  3. Jinjarak, Yothin & Noy, Ilan & Zheng, Huanhuan, 2013. "Capital controls in Brazil – Stemming a tide with a signal?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2938-2952.
  4. Atish R. Ghosh & Jonathan David Ostry & Mahvash Saeed Qureshi, 2014. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Working Papers 14/11, International Monetary Fund.
  5. Gozgor, Giray, 2014. "Determinants of domestic credit levels in emerging markets: The role of external factors," Emerging Markets Review, Elsevier, vol. 18(C), pages 1-18.
  6. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  7. Yongding, Yu, 2014. "How Far Can Renminbi Internationalization Go?," ADBI Working Papers 461, Asian Development Bank Institute.
  8. Marcos Chamon & Marcio Garcia, 2013. "Capital controls in Brazil: effective?," Textos para discussão 606, Department of Economics PUC-Rio (Brazil).

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