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Net Foreign Assets Management and Capital Account Liberalization. The Romanian Case

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  • Florian Neagu

    (National Bank of Romania)

Abstract

EU accession requires, inter alia, free movements of capital. If a massive capital outflow occurs, the central banks from the accession or acceding countries may carry two types of intervention: on money market, and introducing restrictions on capital account. The paper explains when is recommendable to initiate one or other type of intervention, quantifying the intervention costs and introducing the idea of a minim ceiling the net foreign assets may not drop beneath. The model is tested on Romania data, and results assess that a decrease into the net foreign assets up to 20% should call for central bank intervention only on money market. A higher sunk of the net foreign assets will require restrictions on capital movements.

Suggested Citation

  • Florian Neagu, 2003. "Net Foreign Assets Management and Capital Account Liberalization. The Romanian Case," Macroeconomics 0311001, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0311001
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    References listed on IDEAS

    as
    1. Edison, Hali J. & Reinhart, Carmen M., 1999. "Capital controls during financial crises: the cases of Malaysia and Thailand," Proceedings, Federal Reserve Bank of San Francisco, issue Sep, pages 1-36.
    2. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
    3. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    4. Buch, Claudia M. & Heinrich, Ralph P. & Pierdzioch, Christian, 1998. "Taxing short-term capital flows - An option for transition economies?," Kiel Discussion Papers 321, Kiel Institute for the World Economy (IfW).
    5. Buch, Claudia M. & Piazolo, Daniel, 2001. "Capital and trade flows in Europe and the impact of enlargement," Economic Systems, Elsevier, vol. 25(3), pages 183-214, September.
    6. Sebastian Edwards, 2000. "Interest Rates, Contagion and Capital Controls," NBER Working Papers 7801, National Bureau of Economic Research, Inc.
    7. Gruben, William C. & McLeod, Darryl, 2001. "Capital account liberalization and disinflation in the 1990s," Working Papers 0104, Federal Reserve Bank of Dallas.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital account liberalization; European integration; Central bank; Romania;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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