Capital Inflows: Macroeconomic Implications and Policy Responses
IMF Working Papers, March 1, 2009
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Bibliographic details
- Authors: Selim A Elekdag, Ayhan Kose, Roberto Cardarelli
- Published: March 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871883.001
Overview
- Authors: Selim A Elekdag, Ayhan Kose, Roberto Cardarelli
- Date: March 1, 2009
- Scope: Examines macroeconomic implications of, and policy responses to, surges in private capital inflows across a large group of emerging and advanced economies.
- Episodes identified: 109 episodes of large net private capital inflows to 52 countries over 1987-2007.
- Key associations noted: episodes often associated with real exchange rate appreciations and deteriorating current account balances; episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly.
Key Findings
- Empirical episode count and coverage:
- "109 episodes of large net private capital inflows"
- "52 countries"
- Period: "1987-2007"
- Macroeconomic patterns observed:
- "Episodes of large capital inflows are often associated with real exchange rate appreciations and deteriorating current account balances."
- "Such episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly."
- Policy response effectiveness:
- "Resisting nominal exchange rate appreciation through sterilized intervention is likely to be ineffective when the influx of capital is persistent."
- "Tightening capital controls has not in general been associated with better outcomes."
Policy Conclusions and Recommendations
- Three major conclusions from the comprehensive assessment of policy responses:
- "First, keeping public expenditure growth steady during episodes can help limit real currency appreciation and foster better growth outcomes in their aftermath."
- "Second, resisting nominal exchange rate appreciation through sterilized intervention is likely to be ineffective when the influx of capital is persistent."
- "Third, tightening capital controls has not in general been associated with better outcomes."
Subjects and Keywords
- Subject: Balance of payments, Capital controls, Capital inflows, Central banks, Currency markets, Exchange rates, Financial markets, Foreign exchange, Sterilization
- Keywords: Africa, Asia and Pacific, capital control, capital controls, Capital inflows, control measure, crises, Currency markets, current account, Europe, exchange rate appreciation, Exchange rates, Global, net capital, nominal exchange rate, sterilization, sudden stops, WP