Capital Inflows : Macroeconomic Implications and Policy Responses

Author/Editor:

Selim Elekdag ; Ayhan Kose ; Roberto Cardarelli

Publication Date:

March 1, 2009

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 examines the macroeconomic implications of, and policy responses to surges in private capital inflows across a large group of emerging and advanced economies. In particular, we identify 109 episodes of large net private capital inflows to 52 countries over 1987-2007. Episodes of large capital inflows are often associated with real exchange rate appreciations and deteriorating current account balances. More importantly, such episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly. A comprehensive assessment of various policy responses to the large inflow episodes leads to three major conclusions. 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.

Series:

Working Paper No. 09/40

Subject:

English

Publication Date:

March 1, 2009

ISBN/ISSN:

9781451871883/1018-5941

Stock No:

WPIEA2009040

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

62

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