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Coping with Capital Inflows

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Author Info

  • David Vávra
  • Inci Ötker
  • Barry Topf
  • Zbigniew Polanski

Abstract

This paper reviews the experiences of a number of European countries in coping with capital inflows. It describes the nature of the inflows, their implications for macroeconomic and financial stability, and the policy responses used to cope with them. The experiences suggest that as countries become more integrated with international financial markets, there is little room to regulate capital flows effectively. The most effective ways to deal with capital inflows would be to deepen the financial markets, strengthen financial system supervision and regulation, where needed, and improve the capacity to design and implement sound macroeconomic and financial sector policies. These actions will help increase the absorption capacity and resilience of the economies and financial systems to the risks associated with the inflows.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/190.

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Length: 44
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/190

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Keywords: Capital inflows; Inflation targeting; exchange rate; capital markets; capital account liberalization; exchange rate flexibility; capital flows; exchange rates; capital outflows; foreign exchange; capital movements; hedging; capital controls; exchange rate band; flexible exchange rates; subsidiaries; current account deficits; domestic borrowing; exchange rate regime; current account deficit; liberalization of capital; credit expansion; floating exchange rate; foreign investment; exchange rate targets; exchange rate stability; government securities; debt securities; current account balance; capital inflow; foreign capital; exchange rate appreciation; international capital markets; exchange rate policies; foreign exchange market; floating exchange rates; flexible exchange rate; exchange rate risks; exchange rate movements; capital adequacy; short-term capital; fixed exchange rate; exchange rate bands; exchange rate regimes; capital flow; exchange rate targeting; capital market; international capital; short-term capital inflows; floating exchange rate regime; global capital markets; stable exchange rates; management techniques; securities markets; strong capital inflows; capital transactions; exchange rate volatility; capital accounts; short term capital inflows; domestic bonds; access to funds; bond issuance; volatility of inflows; exchange rate risk; real appreciation; capital restrictions; fixed exchange rates; exchange rate adjustments; capital markets in transition countries; currency substitution; real exchange rate appreciation; exchange rate uncertainty; cross-border financial flows; exchange rate changes; exchange rate intervention; capital account transactions; eurobonds; debt service; exchange rate policy; exchange rate guarantee; treasury securities; equity securities; exchange rate guarantees; equity investment; exchange of information; current accounts; capital flow reversals; exchange rate depreciation; freely floating exchange rates; credit rating; flexible exchange rate regimes; exchange rate variability; liberalization of capital flows; implicit exchange rate guarantees; exchange rate arrangements; exchange rate crisis; flexible exchange rate regime; excess liquidity; exchange rate arrangement; brady bonds; real exchange rate;

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References

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  1. Rasmus Kattai & John Lewis, 2004. "Hooverism, hyperstabilisation or halfway-house? describing fiscal policy in Estonia 1996-2003," Bank of Estonia Working Papers 2004-04, Bank of Estonia, revised 10 Oct 2004.
  2. International Monetary Fund, 2006. "Republic of Latvia," IMF Staff Country Reports 06/354, International Monetary Fund.
  3. Inci Ötker, 2007. "Moving to Greater Exchange Rate Flexibility," IMF Occasional Papers 256, International Monetary Fund.
  4. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  5. Frank Barry & John Bradley & Michal Kejak & David Vavra, 2003. "The Czech economic transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 539-567, 09.
  6. Begg, David, 1998. "Pegging Out: Lessons from the Czech Exchange Rate Crisis," CEPR Discussion Papers 1956, C.E.P.R. Discussion Papers.
  7. 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.
  8. International Monetary Fund, 2007. "Republic of Lithuania," IMF Staff Country Reports 07/137, International Monetary Fund.
  9. Akira Ariyoshi & Andrei Kirilenko & Inci Ötker & Bernard Laurens & Jorge Iván Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls," IMF Occasional Papers 190, International Monetary Fund.
  10. Ceyla Pazarbasioglu & Gudrun Johnsen & Paul Louis Ceriel Hilbers & Inci Ötker, 2005. "Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies," IMF Working Papers 05/151, International Monetary Fund.
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Citations

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Cited by:
  1. Christian Saborowski, 2009. "Capital Inflows and the Real Exchange Rate," IMF Working Papers 09/20, International Monetary Fund.
  2. Barry Eichengreen & Katharina Steiner, 2008. "Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption?," NBER Working Papers 14438, National Bureau of Economic Research, Inc.
  3. Dubravko Mihaljek, 2008. "The financial stability implications of increased capital flows for emerging market economies," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 11-44 Bank for International Settlements.
  4. Karl Friedrich Habermeier & Annamaria Kokenyne & Chikako Baba, 2011. "The Effectiveness of Capital Controls and Prudential Policies in Managing Large Inflows," IMF Staff Discussion Notes 11/14, International Monetary Fund.
  5. Scott W Hegerty, 2009. "Capital flows to transition economies: what is the role of external shocks?," Economics Bulletin, AccessEcon, vol. 29(2), pages 1345-1358.
  6. A. Prasad & Charles Frederick Kramer & Hélène Poirson, 2008. "Challenges to Monetary Policy From Financial Globalization," IMF Working Papers 08/131, International Monetary Fund.
  7. Heng, Dyna & Corbett, Jenny, 2011. "What Drives Some Countries to Hoard Foreign Reserves?," MPRA Paper 48552, University Library of Munich, Germany, revised Oct 2011.
  8. International Monetary Fund, 2007. "Vulnerabilities in Emerging Southeastern Europe," IMF Working Papers 07/236, International Monetary Fund.
  9. Scott W. Hegerty, 2011. "Capital Flows to Russia, Ukraine, and Belarus: Does "Hot" Money Respond Differently to Macroeconomic Shocks?," New York Economic Review, New York State Economics Association (NYSEA), vol. 42(1), pages 47-62.
  10. Renzo Rossini & Zenon Quispe & Rocío Gondo, 2008. "Macroeconomic implications of capital inflows: Peru 1991–2007," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 363-387 Bank for International Settlements.

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