## Implications of a Surge in Capital Inflows: Available tools and Consequences for the Conduct of Monetary Policy

_IMF Working Papers, May 1, 1996_

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## Bibliographic details
- Authors: Jang-Yung Lee
- Published: May 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451847345.001

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### Summary
- The paper extends discussion of monetary policy instruments to the situation of a country faced with major capital inflows when domestic financial liberalization is incomplete.
- It:
  - briefly summarizes the recent usage of traditional monetary instruments;
  - discusses the practical limits to classic sterilization measures;
  - discusses the pros and cons of using other supplementary measures including tax-based controls on capital inflows;
  - examines the efficacy of such measures in Chile, Colombia, Indonesia, Korea, Spain, and Thailand.
- Conclusion: for a time and as a transitional measure, a country may find it opportune to supplement traditional instruments with certain “belt and braces” measures including, in some instances, indirect (tax-based) capital controls.

### Major findings and analysis
- Practical limits to classic sterilization measures are highlighted, particularly in the context of incomplete domestic financial liberalization.
- Tax-based (indirect) capital controls are evaluated as supplementary tools, with attention to their pros and cons.
- Efficacy of instruments is assessed through cross-country examination (Chile, Colombia, Indonesia, Korea, Spain, Thailand).

### Case studies examined
- Chile
- Colombia
- Indonesia
- Korea
- Spain
- Thailand

### Policy recommendations and implications
- Temporary, transitional use of supplementary measures can be opportune when facing major capital inflows and incomplete financial liberalization.
- Supplementation of traditional monetary instruments with “belt and braces” measures, including in some instances indirect (tax-based) capital controls, is a recommended option for a time.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/implications-of-a-surge-in-capital-inflows-available-tools-and-consequences-for-the-conduct-2045_