In the early 1990s capital flows to the Asian economies were dominated by FDI. By contrast, Latin America was attracting little FDI and a large share of its inflows were either short-term or portfolio and viewed as “hot money.” These differences gave rise to the view that Latin America was more vulnerable to a reversal of capital flows than Asia. Yet, scant attention was given to the fact that as the capital inflows persisted those regional differences were eroding–it took the crises of 1997 to reveal that Asia’s exposure to the vagaries of short-term capital was vast. Here we present cross-country evidence that capital controls influence the composition of flows, if not their volume while policies of sterilized intervention influence both volume and composition, skewing flows to the short end of the maturity spectrum. We conclude that Asia’s increasing reliance on short term flows was, in large part, due to the macroeconomic policy response to the initial surge in capital inflows.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
13710.
Length: Date of creation: Aug 1999 Date of revision: Publication status: Published in Journal of International Money and Finance 4.18(1999): pp. 619-635 Handle: RePEc:pra:mprapa:13710
Find related papers by JEL classification: F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook F31 - International Economics - - International Finance - - - Foreign Exchange
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Guillermo A. Calvo & Carmen M. Reinhart, 2000.
"Fear of Floating,"
NBER Working Papers
7993, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Reinhart, Carmen & Calvo, Guillermo, 2002.
"Fear of floating,"
MPRA Paper
14000, University Library of Munich, Germany.
[Downloadable!]