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Should Financial Flows Be Regulated? Yes

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  • Gerald Epstein

Abstract

As the international financial crisis spreads, some governments are using “unconventional tools” of monetary and financial policy to protect themselves. Should policies to control international capital flows be part of the government “toolkit” in these difficult times? This essay answers: YES. It describes the economic arguments for and against using capital controls, prudential regulations and other “capital management techniques” to manage international financial flows, presents empirical evidence on their impacts, and describes the variety of policies that many countries have successfully applied to enhance macroeconomic and financial stability, create policy space, and achieve other national development goals.

Suggested Citation

  • Gerald Epstein, 2009. "Should Financial Flows Be Regulated? Yes," Working Papers 77, United Nations, Department of Economics and Social Affairs.
    • Handle: RePEc:une:wpaper:77
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    File URL: http://www.un.org/esa/desa/papers/2009/wp77_2009.pdf
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    References listed on IDEAS

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    1. Ethan Kaplan & Dani Rodrik, 2002. "Did the Malaysian Capital Controls Work?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 393-440, National Bureau of Economic Research, Inc.
    2. Randall Dodd, 2002. "Derivatives, the Shape of International Capital Flows and the Virtues of Prudential Regulation," WIDER Working Paper Series DP2002-93, World Institute for Development Economic Research (UNU-WIDER).
    3. -, 2003. "From capital surges to drought: seeking stability for emerging economies," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1783 edited by Eclac, September.
    4. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-457, March.
    5. Nicolas E. Magud & Carmen M. Reinhart & Kenneth S. Rogoff, 2018. "Capital Controls: Myth and Reality--A Portfolio Balance Approach," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 1-47, May.
    6. Ilene Grabel, 2003. "Averting crisis? Assessing measures to manage financial integration in emerging economies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 27(3), pages 317-336, May.
    7. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    8. Ocampo, José Antonio, 2003. "Capital-account and counter-cyclical prudential regulations in developing countries," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1796, September.
    9. Nicolas Magud & Carmen Reinhart & Kenneth Rogoff, 2005. "Capital Controls: Myth and Reality A Portfolio Balance Approach to Capital Controls," University of Oregon Economics Department Working Papers 2006-10, University of Oregon Economics Department.
    10. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    11. Peter M. Garber, 1998. "Derivatives in International Capital Flows," NBER Working Papers 6623, National Bureau of Economic Research, Inc.
    12. Ilene GRABEL, 2004. "Trip Wires And Speed Bumps: Managing Financial Risks And Reducing The Potential For Financial Crises In Developing Economies," G-24 Discussion Papers 33, United Nations Conference on Trade and Development.
    13. Sebastian Edwards & Jeffrey A. Frankel, 2002. "Preventing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number edwa02-2, July.
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    Cited by:

    1. Lupo Pasini, Federico, 2012. "The International Regulatory Regime on Capital Flows and Trade in Services," ADBI Working Papers 338, Asian Development Bank Institute.

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    More about this item

    Keywords

    Sub-sovereign bonds; infrastructure finance; issuers; investors; financial sector; municipal finance;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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