Capital Inflows: Macroeconomic Implications and Policy Responses

Ayhan Kose (), Selim Elekdag and Roberto Cardarelli

No 09/40, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the macroeconomic implications of, and policy responses to surges in private capital inflows across a large group of emerging and advanced economies. In particular, we identify 109 episodes of large net private capital inflows to 52 countries over 1987-2007. Episodes of large capital inflows are often associated with real exchange rate appreciations and deteriorating current account balances. More importantly, such episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly. A comprehensive assessment of various policy responses to the large inflow episodes leads to three major conclusions. First, keeping public expenditure growth steady during episodes can help limit real currency appreciation and foster better growth outcomes in their aftermath. Second, resisting nominal exchange rate appreciation through sterilized intervention is likely to be ineffective when the influx of capital is persistent. Third, tightening capital controls has not in general been associated with better outcomes.

Keywords: Capital inflows; Emerging markets; Current account deficits; Exchange rate policy; Fiscal policy; Capital controls; Cross country analysis (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dev, nep-ifn, nep-mac and nep-mon
Date: 2009-03-17
View list of references

Downloads: (external link)
http://www.imf.org/external/pubs/ft/wp/2009/wp0940.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:imf:imfwpa:09/40

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund
Address: International Monetary Fund, Washington, DC USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().