Iceland: Selected Issues Paper

International Monetary Fund

No 2015/073, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper examines implications of capital account liberalization in Iceland. Capital controls were critical in 2008 to avoid a more severe collapse of the Icelandic economy. Six years later, capital inflows have been liberalized, but most outflows remain restricted. Iceland has used the breathing room to reduce flow and stock vulnerabilities, strengthen institutions, and prepare for the lifting of capital controls. Simulations using the central bank’s Quarterly Macroeconomic Model (QMM) suggest that, compared with the 2008 crisis episode, the economy can better withstand the impact of an abrupt removal of capital controls. However, the outcome would be dependent on a number of factors, including resident depositor behavior.

Keywords: ISCR; CR; Iceland; financial crisis; saving; investment; statistics Iceland; current account balance; FCI component; credit condition; saving rate; Housing prices; Personal income tax; Private savings; Global; East Asia; Europe (search for similar items in EconPapers)
Pages: 63
Date: 2015-03-13
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