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Capital Inflows and Reserve Accumulation: The Recent Evidence

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  • Carmen M. Reinhart
  • Vincent R. Reinhart

Abstract

Over the past decade, policymakers in many emerging market economies have opted to limit fluctuations of the value of their domestic currencies relative to the U.S. dollar. A simple interest-parity relationship is used to identify the potential sources of upward pressure on the value of a foreign exchange rate and to explain the policy options to damp them. The paper then documents the extent to which the accumulation of foreign exchange reserves has been sterilized and provides a comprehensive list of major policy initiatives related to stemming forces that would otherwise appreciate the exchange rate in over one hundred countries. This examination of policy efforts shows that a wide variety of tools are used in the attempt to stem the tide of capital flows.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13842.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13842

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  1. 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.).
  2. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
  3. 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.
  4. 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.
  5. Reinhart, Vincent R, 2000. "How the Machinery of International Finance Runs with Sand in Its Wheels," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 74-85, February.
  6. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  7. Reinhart, Carmen & Reinhart, Vincent, 2001. "What hurts most?: G-3 exchange rate or interest rate volatility," MPRA Paper 14098, University Library of Munich, Germany.
  8. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
  9. Robert Brandon Kahn & Adam Bennett & María Vicenta Carkovic S. & Susan Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
  10. Reinhart, Carmen M & Reinhart, Vincent R, 1999. "On the Use of Reserve Requirements in Dealing with Capital Flow Problems," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 27-54, January.
  11. Y.Chen & K. Rogoff, 2003. "Commodity Currencies and Empirical Exchange Rate Puzzles," DNB Staff Reports (discontinued) 76, Netherlands Central Bank.
  12. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
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Cited by:
  1. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Reinhart, Vincent, 2009. "Fiscal stimulus for debt intolerant countries?," MPRA Paper 16937, University Library of Munich, Germany.
  3. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2011. "Sovereigns, Upstream Capital Flows, and Global Imbalances," NBER Working Papers 17396, National Bureau of Economic Research, Inc.
  4. Andreas Steiner, 2010. "Central Banks’ Dilemma: Reserve Accumulation, Inflation and Financial Instability," Working Papers 84, Institute of Empirical Economic Research.
  5. Kathryn M.E. Dominguez, 2009. "International Reserves and Underdeveloped Capital Markets," Working Papers 600, Research Seminar in International Economics, University of Michigan.
  6. Gerald Epstein & James Heintz & Léonce Ndikumana & Grace Chang, 2011. "Employment, Poverty and Economic Development in Madagascar," Published Studies ndikumana_ilo2010, Political Economy Research Institute, University of Massachusetts at Amherst.
  7. Kathryn M. E. Dominguez & Yuko Hashimoto & Takatoshi Ito, 2011. "International Reserves and the Global Financial Crisis," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  8. Salas, Jorge, 2011. "Estimación bayesiana de unmodelo de pequeña economía abierta con dolarización parcial," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 41-62.

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