Managing the Tide: How Do Emerging Markets Respond to Capital Flows?
IMF Working Papers, March 27, 2017
Source details
- Canonical URL
- Managing the Tide: How Do Emerging Markets Respond to Capital Flows?
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Bibliographic details
- Authors: Atish R. Ghosh, Jonathan David Ostry, Mahvash S Qureshi
- Published: March 27, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475589207.001
Key findings
- Sample: about 50 emerging market economies (EMEs) over 2005Q1–2013Q4.
- EMEs respond proactively to capital inflows by using a combination of policy tools.
- Policy toolkit deployed in response to inflows includes:
- Central banks raise the policy interest rate to address economic overheating concerns.
- Intervention in the foreign exchange market to resist currency appreciation pressures.
- Tightening of macroprudential measures to dampen credit growth.
- Deployment of capital inflow controls in the face of competitiveness and financial-stability concerns.
- No evidence found of counter-cyclical fiscal policy in the face of capital inflows, contrary to conventional policy advice to EMEs.
- Policies are more likely to respond, and to be used in combination, during inflow surges than in more normal times.
Method and scope
- Type: IMF Working Paper.
- Authors: Atish R. Ghosh; Jonathan David Ostry; Mahvash S Qureshi.
- Publication date: March 27, 2017.
- Coverage period: 2005Q1–2013Q4.
- Sample size: about 50 EMEs.
- Length: 41 pages.
- Series and identifiers:
- Working Paper No. 2017/069
- Issue: 069
- DOI: https://doi.org/10.5089/9781475589207.001
- ISBN: 9781475589207
- ISSN: 1018-5941
- Stock No: WPIEA2017069
Subject areas and keywords
- Subject: Balance of payments; Capital controls; Capital flows; Capital inflows; Central bank policy rate; Financial services; Foreign exchange; Output gap; Production.
- Keywords: capital control; capital controls; capital flow; capital flows; Capital inflows; Central bank policy rate; emerging market economies; exchange rate; FX intervention; Global; inflow control; outflow control; Output gap; policy toolkit; prudential measure; WP
Policy implications and interpretation
- Monetary policy: Raising policy interest rates is a common EME response to curb overheating associated with capital inflows.
- FX policy: Foreign exchange intervention is used to resist appreciation pressures that accompany inflows.
- Macroprudential policy: Authorities tighten prudential measures to temper credit expansion driven by inflows.
- Capital flow management: Capital inflow controls are applied when competitiveness or financial-stability concerns arise.
- Fiscal policy: EMEs did not exhibit counter-cyclical fiscal responses to capital inflows in the study period.
- Coordination and sequencing: Policymakers are more likely to combine tools and to act decisively during inflow surges compared with normal times.
IMF Working Paper: Atish R. Ghosh; Jonathan David Ostry; Mahvash S Qureshi. "Managing the Tide: How Do Emerging Markets Respond to Capital Flows?", March 27, 2017, Working Paper No. 2017/069.
Content in this bundle
- Managing the Tide: How Do Emerging Markets Respond to Capital Flows?, WP/17/69, March 2017