What Do Capital Inflows Do? Dissecting the Transmission Mechanism for Thailand, 1980-96
This paper examines the effects of private financial (non-FDI) capital inflows in Thailand in the pre-crisis period (1980:I–96:IV). Private capital inflows are found to be associated with higher asset prices, lower lending rates, surges in bank lending and domestic spending driven by higher investment, higher output, modest inflation, and modest real exchange rate appreciation. Inflows are also associated with a greater vulnerability to a liquidity crisis, but not with greater external solvency risk. Current account deficits are temporary, thus sustainable, as exports catch up with higher imports within two years. Consequently, the Thai crisis appears to be more of a liquidity crisis than an external solvency crisis.
|Date of creation:||17 Sep 2003|
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|Note:||Type of Document - PDF; prepared on PC; to print on HP, A4 paper; pages: 47 ; figures: included. Final version, forthcoming in Journal of Macroeconomics|
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