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Tools for managing financial-stability risks from capital inflows

Author

Listed:
  • Ostry, Jonathan D.
  • Ghosh, Atish R.
  • Chamon, Marcos
  • Qureshi, Mahvash S.

Abstract

We examine whether macroprudential policies and capital controls can enhance financial stability in the face of the risks typically associated with large capital inflows. We construct new indices of foreign currency (FX)-related prudential measures, domestic prudential measures, and financial-sector specific capital controls for 51 emerging market economies over the period 1995–2008. Our results indicate that both capital controls and FX-related prudential measures are associated with a lower proportion of FX lending in total domestic bank credit, and with a lower proportion of portfolio debt in total external liabilities. Other prudential policies appear to help restrain the intensity of aggregate credit booms. Experience from the global financial crisis suggests that prudential and capital control policies in place during the boom enhanced economic resilience during the bust.

Suggested Citation

  • Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
  • Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:407-421
    DOI: 10.1016/j.jinteco.2012.02.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital inflows; Capital controls; Prudential tools; Currency mismatches;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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