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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

    as
    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. 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.
    3. 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.
    4. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    5. Peter M. Garber, 1998. "Derivatives in International Capital Flows," NBER Working Papers 6623, National Bureau of Economic Research, Inc.
    6. 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.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Sub-sovereign bonds; infrastructure finance; issuers; investors; financial sector; municipal finance;

    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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