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Alternate instruments to manage the capital flow conundrum: A Study of selected Asian economies

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  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

  • Abhijit Sen Gupta

    (Asian Development Bank, New Delhi)

Abstract

Gross capital inflows and outflows to and from emerging market economies (EMEs) have witnessed a significant increase since early 2000s. This rapid increase in these flows accompanied by sharp rise in volatility has amplified the complexity of macroeconomic management in EMEs. While capital inflows provide additional financing for productive investment and offer avenues for risk diversification, unbridled flows could exacerbate financial and macroeconomic instability. In this paper, we focus on the experience of 6 large emerging Asian economies (EAEs) in dealing with capital flows. Using quarterly data, we identify the waves of capital flows experienced by these economies and the efficacy of the alternative policy measures taken by these economies in response to such flows. The policy measures encompass negotiating the trilemma, intervention in the foreign exchange market, and imposition of capital flow management measures. The efficacy of these responses have been varied across countries implying that a judicious mix of these measures, along with improvement in financial and institutional development is required to effectively counter the vagaries of capital flows.

Suggested Citation

  • Rajeswari Sengupta & Abhijit Sen Gupta, 2018. "Alternate instruments to manage the capital flow conundrum: A Study of selected Asian economies," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2018-017
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    References listed on IDEAS

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    Cited by:

    1. Utso Pal Mustafi & Rajeswari Sengupta, 2020. "Regime changes in Indias monetary policy and Tenures of RBI governors," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-011, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Capital flows; Trilemma; Asymmetric intervention; Capital controls; Exchange market pressure;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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