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IMF Seminars, January 1, 1901

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Bibliographic details

• Published: January 1, 1901

Conference overview and objectives

• Joint high-level conference by the Brazilian authorities and the IMF, Rio de Janeiro, Brazil, May 26-27, 2011.
• Focus: recent resurgence of capital flows to emerging market economies (EMEs), their root causes, macroeconomic and financial impacts, and appropriate policy responses.
• Framing issues emphasized:
  • Capital inflows facilitate financing for productive investment, diversification of investment risk, and financial market development.
  • Post-crisis concerns about procyclicality of the financial sector and herd behavior creating boom-bust cycles.
  • Inflows may reflect interest rate differentials that could be partially reversed when policy interest rates in advanced economies (AEs) normalize, or abruptly reverse if global recovery falters and global risk aversion increases.
  • Caution against interpreting recent inflows as a "structural break" given historical "sudden stop" episodes.
  • Large or sudden inflows can complicate macroeconomic management (exchange rate appreciation pressures, overshooting, loss of monetary policy independence), spur costly resource misallocation if temporary, and overwhelm prudential frameworks, fueling asset price bubbles.

Major themes and analytical questions (Conference sessions)

• SESSION I — The Causes of the Recent Wave of Capital Inflows to Emerging Market Economies
  • What determines surges and volatility of capital inflows?
  • Role of macroeconomic policies in the U.S. and other AEs.
  • Differences across types of flows.
  • Whether the recent surge represents a “new normal” or reflects global imbalances.

• SESSION II — Capital Inflows: Blessing or Curse?
  • Impact channels between capital inflows and real and financial sectors in EMEs.
  • Trade-offs: theoretical benefits of capital flows versus risks of diminished competitiveness, inflation and overheating, and asset price bubbles/financial fragilities.
  • Heterogeneity of experience across country characteristics (exchange rate regime, fiscal institutions, quality of domestic supervision/regulation).

• SESSION III — How Should EMEs Manage Rapid Inflows?
  • Policy options: macroeconomic policy, macroprudential policy, and capital controls.
  • Questions on policy hierarchy and systemic consequences of instruments for country choices.
  • Regional policy perspectives and tentative conclusions.

Program highlights and participants

• Dates and venue:
  • May 26-27, 2011; Caesar Park Hotel, Rio de Janeiro.
• Opening remarks and speeches:
  • Speaker: Guido Mantega, Minister of Finance of Brazil.
  • Introductory remarks: Alexandre Tombini, Governor, Banco Central do Brasil; Min Zhu, Special Advisor to the MD, IMF.
  • Dinner speaker: Jagdish Bhagwati, Columbia University.
• Key session chairs and contributors:
  • SESSION I Chair: Cristiano Romero, Valor Economico. Speakers included Joyce Chang (JP Morgan Chase), José Antonio Ocampo (Columbia University), Eduardo Loyo (BTG Pactual), Hyun Song Shin (Princeton University).
  • SESSION II Chair: Stephanie Flanders, BBC. Participants included Paulo Nogueira Batista (Executive Director, IMF), Nicolás Eyzaguirre (IMF), Roberto Frenkel (University of Buenos Aires), John Williamson (Peterson Institute for International Economics).
  • SESSION III Chair: Zanny Minton-Beddoes, The Economist. Participants included Kristin Forbes (Massachusetts Institute of Technology), Jonathan D. Ostry (IMF), Subir Vithal Gokarn (Deputy Governor, Reserve Bank of India), Olivier Jeanne (Johns Hopkins University).
  • Policy Forum: Regional perspectives moderated by Adriana Arai (Bloomberg) with José De Gregorio (Governor, Central Bank of Chile), Turalay Kenç (Vice Governor, Central Bank of Turkey), José Uribe (Governor, Banco de la Republica de Colombia), Atchana Waiquamdee (Deputy Governor, Bank of Thailand).
  • Tentative conclusions presented by Nelson Barbosa Filho (Exec. Sec., Min. of Finance, Brazil) and Olivier Blanchard (IMF).
• Additional program elements:
  • Registration, lunch, coffee break, press briefing.
  • Attendance by invitation only.
• Contact email for conference inquiries: ManagingCapitalFlows2011@imf.org

Policy implications and recommended elements of a response

• A policy response to surges in capital inflows may need to combine:
  • Macroeconomic measures to address exchange rate pressures and macro stability.
  • Prudential and macroprudential tools to strengthen the resilience of the financial sector and limit asset price bubbles.
  • Consideration of capital controls as one element within a broader policy toolkit, assessed relative to macroeconomic and macroprudential options.
• Important considerations for policymakers:
  • Distinguish between temporary and persistent inflows when designing policy responses.
  • Factor country-specific characteristics (exchange rate regime, fiscal institutions, quality of supervision) into tool selection and sequencing.
  • Account for potential systemic consequences and cross-border spillovers when deploying domestic instruments.

Content in this bundle

• 021411apdf (PDF)
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• Jaopdf (PDF)
• Jcpdf (PDF)
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• Rfpdf (PDF)
• Sgpdf (PDF)
• Tkpdf (PDF)
• Sdn1106pdf (PDF)
• Sdn1107pdf (PDF)
• Sdn1110pdf (PDF)
• Spn1004pdf (PDF)