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Dealing with Volatile Capital Flows

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  • Olivier Jeanne

    () (Peterson Institute for International Economics)

Abstract

The tools and mechanisms with which emerging-market countries insure themselves against volatile capital flows are in a state of flux. Most emerging-market countries had accumulated an unprecedented level of international reserves before the 2008 global financial crisis. The crisis itself led to a large increase in International Monetary Fund (IMF) resources and the introduction of a new lending facility, the Flexible Credit Line. Meanwhile, some progress was made toward transforming the Chiang Mai Initiative into an Asian Monetary Fund, and the Greek debt crisis even prompted calls for the creation of a European Monetary Fund. How have emerging-market countries dealt with capital flow volatility in the current crisis? What is the appropriate level of reserves for emerging-market countries? How can international crisis-lending and liquidity-provision arrangements be improved? What role can financial regulation and capital controls play in dealing with volatile capital flows? Olivier Jeanne discusses these and other important questions that are useful to keep in mind when thinking about the reform of international liquidity provision for emerging-market countries to deal with volatile capital flows. Jeanne concludes that the IMF and the international community should make more efforts to establish normative rules for the appropriate level of prudential reserves in emerging-market and developing countries and actively develop with its members a code of good practice for prudential capital controls.

Suggested Citation

  • Olivier Jeanne, 2010. "Dealing with Volatile Capital Flows," Policy Briefs PB10-18, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb10-18
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    Cited by:

    1. IRC Taskforce on IMF Issues, 2018. "Strengthening the Global Financial Safety Net," Occasional Paper Series 207, European Central Bank.
    2. Nicholas Borst & Nicholas R. Lardy & Cullen S. Hendrix & Marcus Noland & Ryan Rutkowski, 2014. "The US-China-Europe Economic Reform Agenda," PIIE Briefings PIIEB14-2, Peterson Institute for International Economics.
    3. Alberola, Enrique & Erce, Aitor & Serena, José Maria, 2016. "International reserves and gross capital flows dynamics," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 151-171.
    4. Cheng, Gong, 2015. "The Global Financial Safety Net through the Prism of G20 Summits," MPRA Paper 68070, University Library of Munich, Germany, revised Nov 2015.
    5. Beatrice D. Scheubel & Livio Stracca, 2016. "What Do We Know About the Global Financial Safety Net? A New Comprehensive Data Set," CESifo Working Paper Series 6184, CESifo Group Munich.
    6. Heng, Dyna & Corbett, Jenny, 2011. "What Drives Some Countries to Hoard Foreign Reserves?," MPRA Paper 48552, University Library of Munich, Germany, revised Oct 2011.
    7. Heng, Dyna, 2011. "Does financial development reduce the motivation to hoard foreign reserves?," MPRA Paper 48555, University Library of Munich, Germany, revised 2012.
    8. Stracca, Livio & Scheubel, Beatrice, 2016. "What do we know about the global financial safety net? Rationale, data and possible evolution," Occasional Paper Series 177, European Central Bank.

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