Capital Flows to Transition Economies: Master or Servant?

By Leslie Lipschitz, Alex Mourmouras, Timothy D. Lane

January 1, 2002

Preview Citation

Format: Chicago

Leslie Lipschitz, Alex Mourmouras, and Timothy D. Lane Capital Flows to Transition Economies: Master or Servant?, (USA: International Monetary Fund, 2002) accessed September 19, 2024

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 forces driving capital flows in the transition countries of Central and Eastern Europe (CEE). It argues that various influences—specifically, the real exchange rate history and trend and the factor intensity of production—can combine to motivate very large capital inflows. These inflows can either undermine attempts at monetary restraint or force excessive appreciations. They can also render the economy highly vulnerable to shifts in market sentiment. The policy implications of the analysis are awkward: exposure to global capital markets sets up difficult dilemmas for policy and leads to vulnerabilities that can be reduced but not eliminated.

Subject: Balance of payments, Capital account, Capital flows, Capital inflows, Current account deficits, Exchange rate arrangements, Financial services, Foreign exchange, Real interest rates

Keywords: Appreciation result, Appreciation vis-a-vis, Authority, Capital, Capital flow, Capital flows, Capital inflows, Capital mobility, Capital scarcity, Central and Eastern Europe, Convergence, Country, Current account deficits, Deutsche mark, Exchange rate arrangements, Global, Macroeconomic policy, Nominal interest rate, Physical capital, Real interest rate differential, Real interest rates, Risk premia, Term capital control, Trend appreciation, Unfettered capital mobility, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/011
Stock No:

WPIEA0112002
ISBN:

9781451842791
ISSN:

1018-5941

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