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Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States

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Author Info
Zsófia Ãrvai
Abstract

This paper discusses the experience of the EU's eight new member countries (EU8) between 1995 and 2003 when the bulk of capital account liberalization took place, focusing on interest-rate-sensitive portfolio flows and financial flows. It takes stock of the lessons from capital flow patterns to draw policy conclusions. There were two distinct groups in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers. The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows. Monetary and exchange rate policies were the main instruments used to react to large interest-sensitive inflows, whereas fiscal tightening was seldom used as a direct reaction to inflows.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/213.

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Length: 42 pages
Date of creation: 30 Nov 2005
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Handle: RePEc:imf:imfwpa:05/213

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Keywords: Capital flows ; European Union ; Capital account liberalization ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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.:
  1. Lusinyan, Lusine & Buch, Claudia M., 2002. "Short-Term Capital, Economic Transformation, and EU Accession," Discussion Paper Series 1: Economic Studies 2002,02, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Pekka Sutela, 2002. "Managing capital flows in Estonia and Latvia," Macroeconomics 0209008, EconWPA. [Downloadable!]
  3. Timothy D. Lane & Leslie Lipschitz & Alex Mourmouras, 2002. "Capital Flows to Transition Economies: Master or Servant," IMF Working Papers 02/11, International Monetary Fund.
  4. Cottarelli, Carlo & Dell'Ariccia, Giovanni & Vladkova-Hollar, Ivanna, 2005. "Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 83-104, January. [Downloadable!] (restricted)
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  5. Carlos Arteta & Barry Eichengreen & Charles Wyplosz, 2001. "When Does Capital Account Liberalization Help More than It Hurts?," NBER Working Papers 8414, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Staff Team, 2006. "Capital Account Liberalization and Financial Sector Stability," IMF Occasional Papers 211, International Monetary Fund.
  7. Claudia M. Buch, 1999. "Capital Mobility and EU Enlargement," Kiel Working Papers 908, Kiel Institute for the World Economy. [Downloadable!]
  8. Claudia M. Buch & Elke Hanschel, 1999. "The Effectiveness of Capital Controls — The Case of Slovenia," Kiel Working Papers 933, Kiel Institute for the World Economy. [Downloadable!]
  9. Niamh Sheridan & Christian H. Beddies & Susan Mary George & Alfred Schipke, 2004. "Capital Markets and Financial Intermediation in The Baltics," IMF Occasional Papers 228, International Monetary Fund.
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  1. Gian Maria Milesi-Ferretti & Philip R. Lane, 2006. "Capital Flows to Central and Eastern Europe," IMF Working Papers 06/188, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Jurgen Von Hagen & Iulia Siedschlag, 2008. "Managing Capital Flows: Experiences from Central and Eastern Europe," Papers WP234, Economic and Social Research Institute (ESRI). [Downloadable!]
  3. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS. [Downloadable!]
  4. Juan Sole & Patricia D Brenner & J. E. J. De Vrijer & Marina Moretti & A. Senhadji Semlali & Gabriel Sensenbrenner & Amor Tahari, 2007. "Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries," IMF Working Papers 07/125, International Monetary Fund. [Downloadable!]
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