Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States

Author/Editor:

Zsofia Arvai

Publication Date:

November 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper discusses the experience of the EU's eight new member countries (EU8) between 1995 and 2003 when the bulk of capital account liberalization took place, focusing on interest-rate-sensitive portfolio flows and financial flows. It takes stock of the lessons from capital flow patterns to draw policy conclusions. There were two distinct groups in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers. The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows. Monetary and exchange rate policies were the main instruments used to react to large interest-sensitive inflows, whereas fiscal tightening was seldom used as a direct reaction to inflows.

Series:

Working Paper No. 2005/213

Subject:

Balance of payments Capital account Capital account liberalization Capital flows Capital inflows Foreign exchange

English

Publication Date:

November 1, 2005

ISBN/ISSN:

9781451862324/1018-5941

Stock No:

WPIEA2005213

Pages:

42

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