Baltic and Icelandic Experiences of Capital Flows and Capital Flow Measures
IMF Working Papers, December 16, 2013
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- Baltic and Icelandic Experiences of Capital Flows and Capital Flow Measures
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Bibliographic details
- Authors: Audun Groenn, Maria Wallin Fredholm
- Published: December 16, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475598179.001
Overview
- Aim: To describe and provide analysis on the experience of managing capital flows in Iceland and the Baltic countries.
- Core observation: During the build-up of the crisis, there were shortcomings in macroeconomic policies and in the policy mix, as well as in financial supervision in the countries covered.
- Methodological note: This is an empirical study that assesses policy responses and the potential role of an IMF framework on capital flows in identifying and addressing problems earlier.
Key findings
- Shortcomings in macroeconomic policies, policy mix, and financial supervision contributed to vulnerabilities during the crisis.
- Traditional macroeconomic and structural policies were "far from exhausted"—i.e., additional use of these tools remained available.
- An IMF framework on capital flows, if in place prior to the crisis, could have made it easier for the IMF and national policymakers to identify accelerating problems at an early stage and address them with targeted measures.
- Subject classification in the study: Balance of payments, Banking, Capital controls, Capital flows, Capital inflows, Fiscal policy, Institutional View on capital flows.
Policy implications and recommendations
- Emphasize the primacy of sound macroeconomic policies: "there are no substitutes for sound macroeconomic policies."
- Strengthen surveillance and early identification mechanisms for accelerating capital-flow-related problems, potentially through an IMF framework on capital flows.
- Consider targeted measures to address identified problems once detected early, complementing traditional macroeconomic and structural policies.
- Improve financial supervision to reduce vulnerability to disruptive capital-flow episodes.
Keywords and thematic tags (as provided)
- authority; Baltic Countries; Baltics; bank; capital; Capital controls; Capital Flow Measures; Capital Flows; Capital inflows; capital requirement; control; country; fiscal policy mix; Global; Iceland; IMF article; IMF framework; IMF ideology; IMF recommendation; IMF surveillance; IMF's article VIII; IMF's framework; IMF's support; Institutional View on capital flows; monetary policy response; risk appetite; WP