Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States
IMF Working Papers, November 1, 2005
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- Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States
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Bibliographic details
- Authors: Zsofia Arvai
- Published: November 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862324.001
Summary
- Author: Zsofia Arvai
- Date: November 1, 2005
- Scope: Experience of the EU's eight new member countries (EU8) between 1995 and 2003 during the bulk of capital account liberalization.
- Focus: Interest-rate-sensitive portfolio flows and financial flows; lessons from capital flow patterns to draw policy conclusions.
Key findings
- Two distinct groups emerged among the EU8 in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers.
- The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows.
- Monetary and exchange rate policies were the main instruments used to react to large interest-rate-sensitive inflows.
- Fiscal tightening was seldom used as a direct reaction to inflows.
Themes and analysis
- Capital account liberalization period: 1995–2003.
- Flow types emphasized: interest-rate-sensitive portfolio flows and financial flows.
- Determinants of inflows:
- Speed of disinflation.
- Level of public debt.
- Policy responses observed:
- Predominant use of monetary policy tools.
- Use of exchange rate policy measures.
- Limited direct recourse to fiscal tightening in response to inflows.