On the Use of Reserve Requirements in Dealing with Capital Flow Problems
AbstractIn recent years, many developing countries have intervened in foreign exchange markets to offset to some extent the effect on their economies of large capital flows. Often changes in reserve requirements were used to mitigate the impact of that intervention on domestic money supplies. Because reserve requirements are a tax, however, changes in reserve requirements can have real effects. This paper shows that the exact implications for output, the real exchange rate and the capital and current accounts depend importantly on who--whether depositors or borrowers--pays the tax. In any case, foreign exchange intervention matched by changes in reserve requirements that keep the money supply fixed do influence the exchange rate in the short and, sometimes, the long run. The recent experiences of ten developing countries establish that, while the incidence of the tax varies considerably across countries and time, both deposit and lending rates of interest respond to changes in reserve requirements. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.
Volume (Year): 4 (1999)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.interscience.wiley.com/jpages/1076-9307/
Other versions of this item:
- Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- F3 - International Economics - - International Finance
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The “Overborrowing Syndrome”," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
- Michael L. Mussa, 1984. "Economically Sensible Solutions for Linear Rational Expectations Models with Forward and Backward Looking Dynamic Processes," NBER Working Papers 1398, National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel and Chudozie Okongwu., 1995.
"Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence,"
Center for International and Development Economics Research (CIDER) Working Papers
C95-054, University of California at Berkeley.
- Frankel, Jeffrey A & Okongwu, Chudozie, 1996. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(1), pages 1-23, January.
- Jeffrey A. Frankel & Chudozie Okongwu, 1995. "Liberalized portfolio capital inflows in emerging markets: sterilization, expectations and the incompleteness of interest rate convergence," Pacific Basin Working Paper Series 95-04, Federal Reserve Bank of San Francisco.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Loungani, Prakash & Rush, Mark, 1995.
"The Effect of Changes in Reserve Requirements on Investment and GNP,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(2), pages 511-26, May.
- Prakash Loungani & Mark Rush, 1991. "The effect of changes in reserve requirements on investment and GNP," Working Paper Series, Macroeconomic Issues 91-21, Federal Reserve Bank of Chicago.
- Prakash Loungani & Mark Rush, 1994. "The effect of changes in reserve requirements on investment and GNP," International Finance Discussion Papers 471, Board of Governors of the Federal Reserve System (U.S.).
- Graciela Kaminsky & Karen K. Lewis, 1993.
"Does Foreign Exchange Intervention Signal Future Monetary Policy?,"
NBER Working Papers
4298, National Bureau of Economic Research, Inc.
- Kaminsky, Graciela L. & Lewis, Karen K., 1996. "Does foreign exchange intervention signal future monetary policy?," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 285-312, April.
- Kaminsky, G.L. & Lewis, K.K., 1992. "Does Foreign Exchange Intervention Signal Future Monetary Policy?," Weiss Center Working Papers 93-3, Wharton School - Weiss Center for International Financial Research.
- Graciela L. Kaminsky & Karen K. Lewis, 1993. "Does foreign exchange intervention signal future monetary policy?," Finance and Economics Discussion Series 93-1, Board of Governors of the Federal Reserve System (U.S.).
- Graciela L. Kaminsky & Karen K. Lewis, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
- Michael P. Dooley, 1995.
"A Survey of Academic Literature on Controls over International Capital Transactions,"
IMF Working Papers
95/127, International Monetary Fund.
- Michael P. Dooley, 1995. "A Survey of Academic Literature on Controls over International Capital Transactions," NBER Working Papers 5352, National Bureau of Economic Research, Inc.
- Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994.
"The capital inflows problem: Concepts and issues,"
13902, University Library of Munich, Germany.
- Dooley, Michael P, 1996. "Capital Controls and Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 197-205, July.
- Sussman, Oren, 1992. "Financial Liberalization: The Israeli Experience," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 387-402, July.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Reinhart, Carmen & Asea, Patrick, 1995. "Real interest rate differentials and the real exchange rate: Evidence from four African countries," MPRA Paper 13357, University Library of Munich, Germany.
- Robert Brandon Kahn & Adam Bennett & MarÃa Vicenta Carkovic S. & Susan Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
- Steven Riess Weisbrod & Liliana Rojas-SuÃ¡rez, 1994. "Financial Market Fragilities in Latin America: From Banking Crisis Resolution to Current Policy Challenges," IMF Working Papers 94/117, International Monetary Fund.
- Carlos A. VÃ©gh Gramont & Ratna Sahay & Guillermo Calvo, 1995. "Capital Flows in Central and Eastern Europe: Evidence and Policy Options," IMF Working Papers 95/57, International Monetary Fund.
- Baltensperger, Ernst, 1980. "Alternative approaches to the theory of the banking firm," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 1-37, January.
- Papazoglou, Christos & Karadeloglou, Pavlos, 1997. "Credit Market Interest Rates and Exchange Rate Dynamics," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 73-84, January.
- Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
- Brock, Philip L, 1989. "Reserve Requirements and the Inflation Tax," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 106-21, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.