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Managing the Tide; How Do Emerging Markets Respond to Capital Flows?


  • Atish R. Ghosh
  • Jonathan David Ostry
  • Mahvash S Qureshi


This paper examines whether—and how—emerging market economies (EMEs) respond to capital flows to mitigate their untoward consequences. Based on a sample of about 50 EMEs over 2005Q1–2013Q4, we find that EME policy makers respond proactively to capital inflows by using a combination of policy tools: central banks raise the policy interest rate to address economic overheating concerns; intervene in the foreign exchange market to resist currency appreciation pressures; tighten macroprudential measures to dampen credit growth; and deploy capital inflow controls in the face of competitiveness and financial-stability concerns. Contrary to conventional policy advice to EMEs, we find no evidence of counter-cyclical fiscal policy in the face of capital inflows. Overall, policies are more likely to respond, and used in combination, during inflow surges than in more normal times.

Suggested Citation

  • Atish R. Ghosh & Jonathan David Ostry & Mahvash S Qureshi, 2017. "Managing the Tide; How Do Emerging Markets Respond to Capital Flows?," IMF Working Papers 17/69, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/69

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    Cited by:

    1. repec:wsi:jicepx:v:08:y:2017:i:03:n:s179399331750017x is not listed on IDEAS
    2. Maurice Obstfeld & Jonathan D. Ostry & Mahvash S. Qureshi, 2019. "A Tie That Binds: Revisiting the Trilemma in Emerging Market Economies," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 279-293, May.
    3. Mircea Epure & Irina Mihai & Camelia Minoiu & José-Luis Peydró, 2017. "Household Credit, Global Financial Cycle, and Macroprudential Policies: Credit Register Evidence from an Emerging Country," Working Papers 1006, Barcelona Graduate School of Economics.
    4. Valerio Nispi Landi, 2017. "Capital controls, macroprudential measures and monetary policy interactions in an emerging economy," Temi di discussione (Economic working papers) 1154, Bank of Italy, Economic Research and International Relations Area.
    5. Jörg Bibow, 2019. "Zur US Dollar Hegemonie: Ein Blick zurück - und in die Zukunft," FMM Working Paper 48-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Pierre-Richard Agénor & Luiz Awazu Pereira da Silva, 2019. "Global Banking, Financial Spillovers, and Macroprudential Policy Coordination," BIS Working Papers 764, Bank for International Settlements.
    7. repec:fru:finjrn:180106:p:71-86 is not listed on IDEAS
    8. repec:bis:bisbps:97 is not listed on IDEAS

    More about this item


    Central banks and their policies; capital flows; policy toolkit; capital controls; emerging market economies; capital flows; policy toolkit; capital controls; emerging market economies;

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