International Capital Flow Reversals (Sudden Stops)

2019 ◽  
Author(s):  
Eduardo A. Cavallo
Keyword(s):  
Current Account ◽  
Capital Flows ◽  
Financial Stability ◽  
Foreign Currency ◽  
The United States ◽  
Capital Inflows ◽  
Sudden Stops ◽  
Lender Of Last Resort ◽  
Current Account Deficits ◽  
Combustible Materials

Sudden stops in capital flows are a form of financial whiplash that creates instability and crises in the affected economies. Sudden stops in net capital flows trigger current account reversals as countries that were borrowing on net from the rest of the world before the stop can no longer finance current account deficits. Sudden stops in gross capital flows are associated with financial instability, especially when the gross flows are dominated by volatile cross-border banking flows. Sudden stops in gross and net capital flows are episodes with an external trigger. This implies that the spark that ignites sudden stops originates outside the affected country: more specifically, in the supply of foreign financing that can halt for reasons that may be unrelated to the affected country’s domestic conditions. Yet a spark cannot generate a fire unless combustible materials are around. The literature has established that a set of domestic macroeconomic fundamentals are the combustible materials that make some countries more vulnerable than others. Higher fiscal deficits, larger current account deficits, and higher levels of foreign currency debts in the domestic financial system are manifestations of weak fundamentals that increase vulnerability. Those same factors increase the costs in terms of output losses when the crisis materializes. On the flip side, international reserves provide buffers that can help countries offset the risks. Holding foreign currency reserves hedges the fiscal position of the government providing it with more resources to respond to the crisis. While it may be impossible for countries to completely insulate themselves from the volatility of capital inflows, the choice of antidotes to prevent that volatility from forcing potentially costly external adjustments is in their own hands. The global financial architecture can be improved to support those efforts if countries could agree on and fund a more powerful international lender of last resort that resembles, at the global scale, the role of the Federal Reserve Bank in promoting financial stability in the United States.

scholarly journals Sudden stops and current account reversals: the euro area experience

SEEU Review ◽  
2015 ◽  
Vol 11 (2) ◽  
pp. 23-32
Author(s):  
Vesna Georgieva Svrtinov ◽  
Olivera Gorgieva-Trajkovska ◽  
Riste Temjanovski
Keyword(s):  
Current Account ◽  
Euro Area ◽  
Capital Inflows ◽  
Sudden Stops ◽  
Private Capital ◽  
The Core ◽  
Current Account Deficits ◽  
The Impact ◽  
The Relationship ◽  
Current Account Reversals

Abstract The paper analyzes the impact of massive capital flows and possible sudden stops on current account reversals. The aim of this paper is to consider the relationship between sudden stops and current account reversals in the eurozone and to explain the possibility of a balance-of-payment crisis within a monetary union. Peripheral eurozone countries experienced significant private-capital inflows from the core countries, followed by unambiguously massive outflows. Due to this, peripheral countries ran sustained current account deficits while core countries ran surpluses. At the end we analyze the evolution of current-account balances in the non-euro area EU countries and the peripheral euro-area countries, and we find out that current account deficits could be maintained over a longer period of time in the peripheral euro-area countries.

Deepening Integration

2017 ◽  
Author(s):  
Yilmaz Akyüz
Keyword(s):  
Emerging Economies ◽  
Financial Integration ◽  
Foreign Currency ◽  
Financial System ◽  
The United States ◽  
Bank Loans ◽  
Capital Inflows ◽  
Resident Participation ◽  
International Financial System ◽  
Private And Public

After recurrent crises with severe consequences in the 1990s and early 2000s EDEs have become even more closely integrated into what is now widely recognized as an inherently unstable international financial system. This chapter discusses the factors accelerating global financial integration of EDEs, including monetary policies in major advanced economies, notably the United States. It examines capital inflows and outflows, external balance sheets, the size and composition of gross external assets and liabilities, distinguishing between equity and debt, private and public sectors, local currency and foreign currency debt, bond issues and bank loans, and cross-border and local lending by international banks. It provides data and information on the currency composition of external debt, and non-resident participation in domestic financial markets of emerging economies. These are used to identify the changes in the depth and pattern of integration of emerging economies into the international financial system since the early 1990s.

scholarly journals THE ROLE OF FINANCIAL CONTROLLING IN THE MANAGEMENT SYSTEM OF TOURISM AND RECREATIONAL COMPANY

2017 ◽  
Vol 1 (9) ◽  
pp. 1-8
Author(s):  
Maia Seliverstova
Keyword(s):  
Financial Stability ◽  
Foreign Currency ◽  
The United States ◽  
Financial Economic ◽  
Modern World ◽  
Main Task ◽  
15Th Century ◽  
Destabilizing Factors ◽  
High Level

In the modern world tourism and recreation are highly profitable activities, which also have asignificantimpact on the economy of the country, contributing to the inflow of foreign currency, creating newjobs, improving infrastructure and so on. In the conditions of economic instability and high level of marketcompetition, success of financial-economic activity of tourist enterprises is determined by the efficiency ofdecision-making that directly depends on the total access to information about the financial state and existingrisks.The aim of the researchwas to identify the role of financial controllingin the management systemof tourist-and-recreational company.Research methodsused for this research paper were analysis, synthesis, comparison, classificationand grouping of functions and objectives oftheobjectbeing studied.The objectwas the role of financial controlling in the management system.It is believed that controlling as economic term was discovered in Europe in the 15th century, afterthat it gained a wide development in the United States. In Russia, the concept of controlling became popularin the 1990s.Conclusions:1. The main task of financial controlling is to maintain profitability and ensure liquidity,i.e. the ability of the enterprise to fulfil its payment obligations at any time that is most relevant for the tourismindustry. Among the key challenges faced by resort companies, it is important to headline the seasonality ofdemand, which largely affects the using of their material resources. The duration of the active period can varyfrom 90 to 180 days; it often depends on climateand a number of other factors (Zlenko, 2015). In order tostabilize the work during the off-season, maintain financial stability and solvency in recent years many tourismand recreational enterprises began to strive for the introduction of modern management systems. 2. Aneffective system of financial controlling at a tourist and recreational enterprise allows fully assessing thecurrent position of the company, making forecasts and successfully resisting external destabilizing factors.

Labor Immigration and Capital Flows: Long-Term Australian, Canadian and United States Experience

1996 ◽  
Vol 30 (4) ◽  
pp. 925-949 ◽  
Author(s):  
Harry R. Clarke ◽  
Lee Smith
Keyword(s):  
United States ◽  
World War Ii ◽  
Capital Flows ◽  
Close Association ◽  
The United States ◽  
Capital Inflows ◽  
World War ◽  
Push Factors ◽  
States Experience

Evidence on labor immigration and capital inflows to three high labor-immigration economies (Australia, Canada, the United States) is examined over periods ranging from 1820–1870 through to 1991. Data show a close association between capital flows and immigration, although causality implications are ambiguous. For the United States, the relation between factor flows is more complex than for the other countries, but flows to the United States have influenced those to smaller economies. All three nations have been subjected to common immigrant push factors through to 1930–1950 but, since World War II, linkages between factor flows have altered. Post-World War II U.S. immigration restrictions have become more important as a global determinant of labor flows, with factor flow policymaking becoming increasingly internationally interdependent.

The ECB as Lender of Last Resort in the Eurozone? An analysis of an optimal institutional design of Emergency Liquidity Assistance competence within the context of the Banking Union

2019 ◽  
Vol 26 (5) ◽  
pp. 628-668
Author(s):  
Sara Elisa Dietz
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
European Central Bank ◽  
Institutional Design ◽  
The United States ◽  
Central Banks ◽  
Banking Union ◽  
The European Union ◽  
Lender Of Last Resort ◽  
European Central

The latest financial crises in Europe and the United States have reminded us of the importance of the role of central banks as Lender of Last Resort. This article examines the current legal framework in the European Union with regard to the allocation of Lender of Last Resort competence, which until now has been exercised by the national central banks in the Eurozone. The new Emergency Liquidity Assistance Agreement 2017 sustains this institutional design, leaves the Emergency Liquidity Assistance competence with the national central banks and specifies the cooperation between the European Central Bank and the national central banks with regard to the veto-option of the European Central Bank to national Emergency Liquidity Assistance operations. Against this background, the paper discusses whether the current legal competence structure of the European and Monetary Union would also allow for more authority of the European Central Bank with regard to Emergency Liquidity Assistance powers. The paper concludes there is a sufficient legal basis in the monetary policy and financial stability mandate of the European Central Bank to allow it to grant Emergency Liquidity Assistance at least with regard to ‘significant’ banks, as defined under the current European Banking Supervision regime.

scholarly journals An Analysis of Pakistan’s Vulnerability to Economic Crisis

2007 ◽  
Vol 46 (4II) ◽  
pp. 597-610 ◽  
Author(s):  
Safdar Ullah Khan ◽  
Omar Farooq Saqib
Keyword(s):  
Current Account ◽  
Capital Flows ◽  
Banking Industry ◽  
Current Account Deficit ◽  
Empirical Literature ◽  
Budget Balance ◽  
Foreign Exchange Reserves ◽  
Real Gdp ◽  
Current Account Deficits ◽  
First And Second Generation

The post 9/11 scenario in Pakistan’s economy can readily be identified with a host of positive developments. Real GDP growth rates have averaged around 6 percent since 2002, stock market surges have broken all the previous records, there is much more dynamism in the banking industry, capital flows are pouring into the economy, foreign exchange reserves have swelled to record high levels, and poverty has witnessed a declining trend. However, what mars these celebrations since last year is the scepticism of some market commentators on the growing vulnerability of Pakistan’s economy to crisis.1 The main weakness, as widely pointed out, remains the sustainability of current account deficit along with rising fiscal imbalances. A review of empirical literature on the determinants of currency crisis introduces a host of macroeconomic fundamentals broadly based on the predictions of the seminal first- and second-generation models. Although the list of these determinants varies from study to study, the consensus appears to be on the sustainability of external and fiscal positions as the main predictors of a crisis. An overview of the Pakistani fundamentals since 2000 reveals that broadly key Pakistani economic indicators do not give an immediate cause for concern. However, the emergence of primary budget balance as a deficit and the growing trade and current account deficits in the last two years does seem to be a cause for concern.

Sign in / Sign up

Export Citation Format

Share Document