Capital Flows to Transition Economies: Master or Servant?

Leslie Lipschitz, Alex Mourmouras and Timothy Lane

No 2002/011, IMF Working Papers from International Monetary Fund

Abstract: This paper discusses the forces driving capital flows in the transition countries of Central and Eastern Europe (CEE). It argues that various influences—specifically, the real exchange rate history and trend and the factor intensity of production—can combine to motivate very large capital inflows. These inflows can either undermine attempts at monetary restraint or force excessive appreciations. They can also render the economy highly vulnerable to shifts in market sentiment. The policy implications of the analysis are awkward: exposure to global capital markets sets up difficult dilemmas for policy and leads to vulnerabilities that can be reduced but not eliminated.

Keywords: WP; capital; country; authority; capital flow; Central and Eastern Europe; capital flows; convergence; macroeconomic policy; capital scarcity; trend appreciation; deutsche mark; unfettered capital mobility; risk premia; nominal interest rate; real interest rate differential; appreciation vis-a-vis; physical capital; term capital control; capital mobility; appreciation result; Capital inflows; Real interest rates; Current account deficits; Exchange rate arrangements; Global (search for similar items in EconPapers)
Pages: 36
Date: 2002-01-01
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Citations: View citations in EconPapers (53)

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