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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. Kaminsky, G.L. & Lewis, K.K., 1992. "Does Foreign Exchange Intervention Signal Future Monetary Policy?," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 93-3, Wharton School - Weiss Center for International Financial Research.
  2. Jeffrey A. Frankel and Chudozie Okongwu., 1995. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C95-054, University of California at Berkeley.
  3. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, American Economic Association, vol. 83(5), pages 1356-69, December.
  4. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  5. Y.Chen & K. Rogoff, 2003. "Commodity Currencies and Empirical Exchange Rate Puzzles," DNB Staff Reports (discontinued), Netherlands Central Bank 76, Netherlands Central Bank.
  6. Reinhart, Vincent R, 2000. "How the Machinery of International Finance Runs with Sand in Its Wheels," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 8(1), pages 74-85, February.
  7. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  8. 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.
  9. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
  10. Carmen M. Reinhart & Vincent R. Reinhart, 2001. "What Hurts Most? G-3 Exchange Rate or Interest Rate Volatility," NBER Working Papers 8535, National Bureau of Economic Research, Inc.
  11. 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.
  12. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(4), pages 65-84, Fall.
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Cited by:
  1. Alfaro, Laura & Kalemli-Ozcan, Sebnem & Volosovych, Vadym, 2011. "Sovereigns, Upstream Capital Flows, and Global Imbalances," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8648, C.E.P.R. Discussion Papers.
  2. Salas, Jorge, 2011. "Estimación bayesiana de unmodelo de pequeña economía abierta con dolarización parcial," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 22, pages 41-62.
  3. Andreas Steiner, 2010. "Central Banks’ Dilemma: Reserve Accumulation, Inflation and Financial Instability," Working Papers, Institute of Empirical Economic Research 84, Institute of Empirical Economic Research.
  4. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER International Seminar on Macroeconomics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 193 - 221.
  5. Kathryn M.E. Dominguez & Yuko Hashimoto & Takatoshi Ito, 2011. "International Reserves and the Global Financial Crisis," NBER Working Papers 17362, National Bureau of Economic Research, Inc.
  6. 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.
  7. Gerald Epstein & James Heintz & Léonce Ndikumana & Grace Chang, 2011. "Employment, Poverty and Economic Development in Madagascar," Published Studies, Political Economy Research Institute, University of Massachusetts at Amherst ndikumana_ilo2010, Political Economy Research Institute, University of Massachusetts at Amherst.
  8. Epstein, Gerald & Heintz, James & Ndikumana, Léonce & Chang, Grace, 2010. "Employment, poverty and economic development in Madagascar : a macroeconomic framework," ILO Working Papers, International Labour Organization 455446, International Labour Organization.
  9. repec:dgr:uvatin:2011126 is not listed on IDEAS
  10. Reinhart, Carmen & Reinhart, Vincent, 2009. "Fiscal stimulus for debt intolerant countries?," MPRA Paper 16937, University Library of Munich, Germany.

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