Managing the Tide: How Do Emerging Markets Respond to Capital Flows?

Atish Ghosh (), Jonathan Ostry and Mahvash Qureshi

No 2017/069, IMF Working Papers from International Monetary Fund

Abstract: This paper examines whether—and how—emerging market economies (EMEs) respond to capital flows to mitigate their untoward consequences. Based on a sample of about 50 EMEs over 2005Q1–2013Q4, we find that EME policy makers respond proactively to capital inflows by using a combination of policy tools: central banks raise the policy interest rate to address economic overheating concerns; intervene in the foreign exchange market to resist currency appreciation pressures; tighten macroprudential measures to dampen credit growth; and deploy capital inflow controls in the face of competitiveness and financial-stability concerns. Contrary to conventional policy advice to EMEs, we find no evidence of counter-cyclical fiscal policy in the face of capital inflows. Overall, policies are more likely to respond, and used in combination, during inflow surges than in more normal times.

Keywords: WP; capital control; capital flow; inflow control; exchange rate; outflow control; capital flows; policy toolkit; capital controls; emerging market economies; FX intervention; prudential measure; Capital inflows; Central bank policy rate; Output gap; Global (search for similar items in EconPapers)
Pages: 41
Date: 2017-03-27
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Citations: View citations in EconPapers (65)

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