IMF Policy Discussion Papers

Capital Inflows and Balance of Payments Pressures: Tailoring Policy Responses in Emerging Market Economies

Author/Editor:

Bikas Joshi ; Manuela Goretti ; Uma Ramakrishnan ; Alun H. Thomas ; Atish R. Ghosh ; Juan Zalduendo

Publication Date:

June 1, 2008

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Although capital inflows are generally beneficial to recipient countries, they also pose a challenge for the conduct of economic policy. This paper proposes a conceptual taxonomy to guide the design of policy responses in the face of capital flows. We explore how responses to capital surges should be differentiated based on the source of balance of payments pressures. We also examine whether the policy choices in emerging market countries conform to the taxonomy's predictions and find some correspondence, especially during periods of high global liquidity.

Series:

Policy Discussion Paper No. 2008/002

Subject:

Balance of payments Capital flows Capital inflows Current account balance Current account deficits Current account surpluses

Frequency:

Quarterly