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Implications of a Surge in Capital Inflows: Available tools and Consequences for the Conduct of Monetary Policy

  • Jang-Yung Lee
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    This paper seeks to extend discussion of monetary policy instruments to the situation of a country faced with major capital inflows when the process of domestic financial liberalization is incomplete. It briefly summarizes the recent usage of traditional monetary instruments, discusses the practical limits to classic sterilization measures as well as the pros and cons of using other supplementary measures including tax-based controls on capital inflows. It also examines the efficacy of such measures in Chile, Colombia, Indonesia, Korea, Spain, and Thailand. The conclusion is that, for a time and as a transitional measure, a country may find it opportune to supplement the traditional instruments with certain “belt and braces” measures including, in some instances, indirect (tax-based) capital controls.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 96/53.

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    Length: 66
    Date of creation: 01 May 1996
    Date of revision:
    Handle: RePEc:imf:imfwpa:96/53
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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    2. Benavie, Arthur & Froyen, Richard, 1992. "Optimal monetary policy with an interest-equalization tax in a two-country macroeconomic model," Journal of Macroeconomics, Elsevier, vol. 14(3), pages 449-466.
    3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "El problema de la afluencia de capital: Conceptos y temas
      [The Capital Inflows Problem: Concepts and Issues]
      ," MPRA Paper 13682, University Library of Munich, Germany.
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