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

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  • Zsófia Ãrvai
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    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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    Bibliographic Info

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

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    Length: 42
    Date of creation: 01 Nov 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/213

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    Keywords: Capital flows; Capital account liberalization; European Union; capital account; capital inflows; current account; current account balance; government securities; capital movements; capital markets; capital controls; debt securities; securities market; capital mobility; capital accounts; current account deficits; capital flow; net capital; short-term capital; net capital flows; current account deficit; international capital markets; capital account convertibility; securities markets; international capital; capital transactions; real appreciation; treasury securities; volatility of capital flows; global capital markets; private capital flows; mature markets; open capital account; capital account opening; movement of capital; capital market; domestic borrowing; capital account restrictions; capital account transactions; securities operations; foreign securities; stock market; marketable securities; equity securities; eurobonds; commercial credits; capital flow volatility; securities transactions; speculative attacks; free movement of capital; current account adjustment; government bonds; brady bonds; debt service; stock market capitalization; corporate bond market; corporate securities; private capital; international capital market; current account convertibility; liberalization of capital; stock exchange;

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    1. Niamh Sheridan & Alfred Schipke & Susan Mary George & Christian H. Beddies, 2004. "Capital Markets and Financial Intermediation in The Baltics," IMF Occasional Papers 228, International Monetary Fund.
    2. 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.
    3. 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.
    4. 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.
    5. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
    6. Claudia Buch, 1999. "Capital mobility and EU enlargement," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(4), pages 629-656, December.
    7. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies," IMF Working Papers 02/11, International Monetary Fund.
    8. Ivanna Vladkova Hollar & Giovanni Dell'Ariccia & Carlo Cottarelli, 2003. "Early Birds, Late Risers, and Sleeping Beauties," IMF Working Papers 03/213, International Monetary Fund.
    9. Pekka Sutela, 2002. "Managing capital flows in Estonia and Latvia," Macroeconomics 0209008, EconWPA.
    10. Nancy L. Wagner & Dora M. Iakova, 2001. "Financial Sector Evolution in the Central European Economies," IMF Working Papers 01/141, International Monetary Fund.
    11. 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.
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    Cited by:
    1. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "Capital flows to central and Eastern Europe," Emerging Markets Review, Elsevier, vol. 8(2), pages 106-123, May.
    3. Juan Sole & Gabriel Sensenbrenner & Amor Tahari & J. E. J. De Vrijer & Marina Moretti & Patricia D Brenner & A. Senhadji Semlali, 2007. "Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries," IMF Working Papers 07/125, International Monetary Fund.

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