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The Recent Experience with Capital Flows to Emerging Market Economies

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  • Sveinbjörn Blöndal
  • Hans Christiansen

Abstract

This paper summarises key points of the recent extensive discussion of the factors behind the volatility of cross-border capital flows in emerging market countries and possible corrective measures. The root cause of the recent volatility of capital flows seems to have been excessive credit and currency risk-taking by banks, which in turn was related to moral hazard problems, failure of prudential regulations and bank supervision, and weak effective standards of financial disclosure. Macroeconomic factors also played a role, with a widening deficit on the balance of payments and fixed (or predictable) exchange rates gradually undermining confidence of creditors and investors. Liquidity problems may have amplified the reaction to adverse news, and herd behaviour and contagion may also have exaggerated reaction to changing fundamentals and transmitted crises from one country to another. Capital controls, which have been extensively used in emerging market countries, may not be very ... Ce document résume les points clés des importantes discussions récentes concernant les facteurs sousjacents à la volatilité des flux de capitaux trans-frontière dans les pays aux marchés émergents ainsi que les éventuelles mesures correctrices. La cause principale de la volatilité récente des flux de capitaux semble avoir été une prise de risque excessive des banques au niveau du crédit et des monnaies. Ceci est lié à des problèmes de risques moraux, à l’échec des règlements prudentiels et des contrôles bancaires ainsi qu’à la faiblesse des supports effectifs dans le domaine de la communication financière. Les facteurs macroéconomiques ont aussi joué leur rôle. Une augmentation du déficit de la balance des payements ainsi que des taux de change fixes (ou prévisibles) ont lentement sapé la confiance des créanciers et des investisseurs. Les problèmes de liquidité ont peut-être amplifié la réaction aux informations défavorables et le comportement grégaire ainsi que des phénomènes de ...

Suggested Citation

  • Sveinbjörn Blöndal & Hans Christiansen, 1999. "The Recent Experience with Capital Flows to Emerging Market Economies," OECD Economics Department Working Papers 211, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:211-en
    DOI: 10.1787/387426718682
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    Cited by:

    1. Bofinger, Peter & Wollmershäuser, Timo, 2000. "Monetary policy and exchange rate targeting in open economies," W.E.P. - Würzburg Economic Papers 14, University of Würzburg, Department of Economics.
    2. Bofinger, Peter & Wollmershäuser, Timo, 2000. "Options for the exchange rate policies in the EU accession countries (and other emerging market economies)," W.E.P. - Würzburg Economic Papers 13, University of Würzburg, Department of Economics.
    3. Marek Dabrowski & Malgorzata Antczak & Monika Blaszkiewicz & Malgorzata Jakubiak & Wojciech Paczynski & Marcin Sasin, 2001. "The Episodes of Currency Crisis in Latin American and Asian Economies," CASE Network Reports 0039, CASE-Center for Social and Economic Research.
    4. Hartwell, Christopher A., 2011. "All That’s Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneurship in Emerging Markets," MPRA Paper 40257, University Library of Munich, Germany.
    5. Yilmaz Akyüz, 2009. "Mananging Financial Instability: Why Prudence is not Enough?," Working Papers 86, United Nations, Department of Economics and Social Affairs.

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