Money, Capital Flows and the Open Economy

1982 ◽  
pp. 164-179
Author(s):  
Rosalind Levačić ◽  
Alexander Rebmann
Keyword(s):  
Open Economy ◽  
Capital Flows

Financial openness, bank capital flows, and the effectiveness of macroprudential policies

2021 ◽  
pp. 1-32
Author(s):  
Hao Jin ◽  
Chen Xiong
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Open Economies ◽  
Small Open Economy ◽  
Empirical Support ◽  
Bank Capital ◽  
Macroprudential Policy ◽  
Funding Sources ◽  
Macroprudential Policies ◽  
Dynamic Stochastic

Abstract This paper quantitatively examines the macroeconomic and welfare effects of macroprudential policies in open economies. We develop a small open economy dynamic stochastic general equilibrium (DSGE) model, where banks choose their funding sources (domestic vs. foreign deposits) and are subject to financial constraints. Our model predicts that banks reduce leverage in response to a macroprudential policy tightening, but increasingly rely on foreign funding. This endogenous shifts of funding composition significantly undermine the stabilizing effect and welfare gains of macroprudential policies. Our results also suggest macroprudential policies are less effective in financially more open economies, and optimal policy should take capital flows into consideration. Finally, we find empirical support for the model predictions in a group of developing and emerging economies.

Elections, Capital Flows, and Politico-Economic Equilibria

2010 ◽  
Vol 100 (4) ◽  
pp. 1759-1777 ◽  
Author(s):  
Roberto Chang
Keyword(s):  
Empirical Evidence ◽  
Open Economy ◽  
Capital Flows ◽  
Tax Policy ◽  
Foreign Debt ◽  
Economic Crises ◽  
Economic Equilibria ◽  
Electoral Outcomes ◽  
Investment Returns

We study an open economy where a pro-labor and a pro-business candidate compete in an election. The winner chooses taxes, which affect investment returns. Electoral outcomes depend on the size of the foreign debt, but the debt itself reflects expectations about the election. The resulting interaction is novel and has several implications. Elections are associated with increased volatility. Politico-economic crises can occur. Inefficiencies vanish if the candidates commit to an appropriate tax policy, but such commitments have predictable effects on the election. Empirical evidence supporting the theory is discussed. (JEL D72, F34, O17, O19)

scholarly journals Shocks Matter

2020 ◽  
Vol 20 (97) ◽  
Author(s):  
Ruy Lama ◽  
Juan Medina
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Small Open Economy ◽  
Policy Instruments ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Foreign Exchange Intervention ◽  
Leading Role ◽  
Interest Rate Shocks ◽  
Capital Outflows

We study the optimal management of capital flows in a small open economy model with financial frictions and multiple policy instruments. The paper reports two main findings. First, both foreign exchange intervention (FXI) and macroprudential polices are tools complementary to the monetary policy rate that can largely reduce inflation and output volatility in a scenario of capital outflows. Second, the optimal policy mix depends on the underlying shock driving capital flows. FXI takes the leading role in response to foreign interest rate shocks, while macroprudential policy becomes the prominent tool for domestic risk shocks. These results highlight the importance of calibrating the use of multiple instruments according to the underlying shocks that induce shifts in capital flows.

Capital Flows, Default, and Renegotiation in a Small Open Economy

2017 ◽  
Author(s):  
Udara Peiris ◽  
Anna Sokolova ◽  
Dimitrios P. Tsomocos
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Small Open Economy

scholarly journals Capital Flows: Expansionary or Contractionary?

2016 ◽  
Vol 106 (5) ◽  
pp. 565-569 ◽  
Author(s):  
Olivier Blanchard ◽  
Jonathan D. Ostry ◽  
Atish R. Ghosh ◽  
Marcos Chamon
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Financial Intermediation ◽  
Emerging Market ◽  
Capital Inflows ◽  
Policy Makers ◽  
Market Policy ◽  
Credit Booms ◽  
Macro Model ◽  
Net Exports

The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging market policy makers, however, believe that inflows lead to credit booms and rising output; the evidence appears to go their way. To reconcile theory and reality, we extend the set of assets in the Mundell-Fleming model to include both bonds and non-bonds. At a given policy rate, inflows may decrease the rate on non-bonds, stimulating financial intermediation and, potentially, output as well. We explore the implications, and find support for the key predictions in the data.

Sign in / Sign up

Export Citation Format

Share Document