The Short-term Determinants of Capital Flows for a Small Open Economy: The Case of Greece

2011 ◽  
Vol 15 (4) ◽  
pp. 699-713 ◽  
Author(s):  
Anastasios P. Pappas
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Small Open Economy ◽  
Short Term ◽  
Of Greece

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.

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 Financial liberalisation and inflationary dynamics in the context of a small open economy

2014 ◽  
Vol 9 (1) ◽  
pp. 89-101
Author(s):  
R Gupta
Keyword(s):  
Open Economy ◽  
Capital Mobility ◽  
Small Open Economy ◽  
Capital Account ◽  
Short Term ◽  
Money Markets ◽  
Reserve Requirements ◽  
Low Degree ◽  
Financial Liberalisation ◽  
High Degree

This paper develops a short-term model of a small open financially repressed economy characterised by unorganised money markets, intermediate goods imports, capital mobility and flexible exchange rates. The analysis shows that financial liberalisation, in the form of increased rate of interest on deposits and tight monetary policy, causes deflation for an economy with a high degree of capital mobility. However, for economies with a low degree of capital mobility, the possibility of stagflation cannot be ruled out. These results suggest that financial liberalisation in the form of lower reserve requirements should be recommended for economies with restricted transactions in the capital account.

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