Taming the Tide of Capital Flows

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Financial Stability ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Capital Inflow ◽  
Capital Inflows ◽  
Comprehensive Treatment ◽  
Policy Tools

While always episodic in nature, capital flows to emerging market economies have been especially volatile since the global financial crisis. After peaking at $680 billion in 2007, flows to emerging markets turned negative at the onset of crisis in 2008, then rebounded only to recede again during the U.S. sovereign debt downgrade in 2011. Since then, flows have continued to swing wildly, leaving emerging market policy makers wondering whether they can put in place policies during the inflow phase that will soften the blow when flows subsequently recede. This book offers the first comprehensive treatment of policy measures intended to help emerging markets contend with large and volatile capital flows. The book explains that, in the spirit of liberalization and deregulation in the 1980s and 1990s, many emerging market governments eliminated capital inflow controls along with outflow controls. By 2012, however, capital inflow controls were again acknowledged as legitimate policy tools. Focusing on the macroeconomic and financial-stability risks associated with capital flows, the book combines theoretical and empirical analysis to consider the interaction between monetary, exchange rate, macroprudential, and capital control policies to mitigate these risks. It examines the effectiveness of various policy tools, discuss the practical considerations and multilateral implications of their use, and provide concrete policy advice for dealing with capital inflows.

Book Reviews

2012 ◽  
Vol 50 (3) ◽  
pp. 821-823
Keyword(s):  
Capital Flows ◽  
Financial Stability ◽  
Financial Regulation ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Central Banking ◽  
Financial Policies ◽  
Global Affairs ◽  
The Global Financial Crisis

Ashoka Mody of International Monetary Fund reviews “Growth with Financial Stability: Central Banking in an Emerging Market” by Rakesh Mohan. The EconLit abstract of the reviewed work begins: Explores the evolving roles of fiscal, monetary, and financial policies in India and their interaction and adaptation since India's independence, focusing on reforms since the early 1990s. Discusses the growth record of the Indian economy -- a story of sustained savings and investment; sustaining growth with stability -- the role of fiscal and monetary policies; innovation and growth -- role of the financial sector; development of banking and financial markets in India -- fostering growth while containing risk; development of the Indian debt market; financial inclusion in India; communication in central banks -- a perspective; volatile capital flows and Indian monetary policy; liberalization and regulation of capital flows -- lessons for emerging market economies; the global financial crisis -- causes, impact, policy responses, and lessons; emerging contours of financial regulation -- challenges and dynamics; and economic reforms in India --where we are and where we go. Mohan is Professor in the Practice of International Economics and Finance with the School of Management and Senior Fellow at the Jackson Institute of Global Affairs at Yale University. Index.

scholarly journals The Role of Financial Globalization in the Propagation of the World Financial Crisis

2019 ◽  
Vol 7 (2) ◽  
pp. 22-31
Author(s):  
M. Zharikov
Keyword(s):  
Financial Crisis ◽  
Emerging Markets ◽  
Financial Stability ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Early 21St Century ◽  
The Great Depression ◽  
The World ◽  
The Global Financial Crisis

This article is specifically devoted to financial globalisation and financial crises in the early 21st century. Obviously, it is a topic everyone is interested in after the global financial crisis of 2008–2010, the worst global financial crisis since the Great Depression. Its effects are still felt across the world today. Both industrial and emerging countries still suffer from high unemployment. In some of them, GDP has not yet reached pre-crisis levels. And this global crisis — if it were not enough — was followed very quickly by the Eurozone’s sovereign debt crisis, which even though Ireland and now just recently Portugal have returned to private borrowing markets, is not resolved at all and is pretty much in remission but could come back. Lately, there have been concerns about emerging markets, including the BRICS, starting in 2016. There are various tremors in the emerging markets, capital outflows and currency depreciation. So, all over the world, one can see events that potentially cause questions about financial stability, which is an especially acute issue to look at.

scholarly journals Capital flows to emerging economies during and after the global financial crisis in 2008

2013 ◽  
Vol 3 (1) ◽  
pp. 71
Author(s):  
Dr.Sc. Vesna Georgieva Svrtinov ◽  
Dr.Sc. Riste Temjanovski
Keyword(s):  
Financial Crisis ◽  
Emerging Economies ◽  
Capital Flows ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Regional Distribution ◽  
Capital Inflows ◽  
International Capital ◽  
Policy Responses ◽  
The Global Financial Crisis

This paper analyses dynamics of various types of capital flows to emerging economies during and after the global financial crisis. The first part discusses dynamics of various types of international capital flows during the global financial crisis. The second part focuses on the regional distribution of capital inflows to emerging markets economies. The third part raises the issue of the changed pattern of foreign direct investment, observed during and after the global crisis. The fourth part discusses possible policy responses for dealing with volatile capital flows to emerging market economies.

scholarly journals SURGING CAPITAL FLOWS TO EMERGING ASIA: FACTS, IMPACTS AND RESPONSES

2013 ◽  
Vol 04 (02) ◽  
pp. 1350007 ◽  
Author(s):  
RAVI BALAKRISHNAN ◽  
SYLWIA NOWAK ◽  
SANJAYA PANTH ◽  
YIQUN WU
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Financial Stability ◽  
Historical Perspective ◽  
Global Financial Crisis ◽  
Asian Countries ◽  
Resource Misallocation ◽  
Regulatory Measures ◽  
The Global Financial Crisis ◽  
Asian Emerging Markets

Net capital flows to Emerging Asia rebounded at a record pace following the global financial crisis, raising concerns about overheating and financial stability. This paper documents the size and composition of the most recent surge to Asian emerging markets from a historical perspective and compares developments in the broader economy, asset prices, and corporate variables across the different episodes of strong inflows. We find little evidence of a significant build-up of imbalances and resource misallocation during the most recent surge. We also review country experiences in managing the risks associated with inflows and argue that Asian countries have used regulatory measures during past surges.

Macroeconomic Shocks and Unconventional Monetary Policy

2019 ◽  
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Emerging Markets ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Developing Economies ◽  
Spillover Effects ◽  
Macroeconomic Shocks ◽  
Monetary Policies ◽  
Developed Economies

Barely two decades after the Asian financial crisis Asia was suddenly confronted with multiple challenges originating outside the region: the 2008 global financial crisis, the European debt crisis, and, finally developed economies’ implementation of unconventional monetary policies. Especially the implementation of quantitative easing (QE), ultra-low interest rate policies, and negative interest rate policies by a number of large central banks has given rise to concerns over financial stability and international capital flows. One of the regions most profoundly affected by the crisis was Asia due to its high dependence on international trade and international financial linkages. The objective of this book is to explain how macroeconomic shocks stemming from the global financial crisis and recent unconventional monetary policies in developed economies have affected macroeconomic and financial stability in emerging markets, with a particular focus on Asia. In particular, the book covers the following thematic areas: (i) the spillover effects of macroeconomic shocks on financial markets and flows in emerging economies; (ii) the impact of recent macroeconomic shocks on real economies in emerging markets; and (iii) key challenges for the monetary, exchange rate, trade, and macroprudential policies of developing economies, especially Asian economies, and suggestions and recommendations to increase resiliency against external shocks.

scholarly journals Liquidity regulations and bank behavior: An emerging markets perspective

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 194-211
Author(s):  
Tafirei Mashamba
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Emerging Market Economies ◽  
Basel Iii ◽  
Market Economies ◽  
Coverage Ratio ◽  
The Impact

The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

Regulating Capital Flows: A Historical Perspective

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Historical Perspective ◽  
Financial Liberalization ◽  
Capital Controls ◽  
Authoritarian Regimes ◽  
Capital Inflows ◽  
Macroeconomic Policies ◽  
Advanced Economies ◽  
Guilt By Association

This chapter summarizes how thinking about capital flows and their management has evolved in both policymaking and academic circles. Many advanced economies used restrictions on capital inflows for prudential purposes—even as they pursued financial liberalization more broadly—until the 1980s, when capital account restrictions began to be swept away as part of broader liberalization efforts. Likewise, many emerging markets that had inflow controls for prudential reasons dismantled them when liberalizing domestic financial markets and controls over outflows. That the use of capital controls as a means of managing inflows is often viewed with suspicion may be partly a “guilt by association” with outflow controls and exchange restrictions. Historically, these have been more prevalent and more intensive, and their purpose has been to prop up authoritarian regimes or poor macroeconomic policies, often affecting both current and capital transactions.

scholarly journals Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

2020 ◽  
Vol 9 (s1) ◽  
pp. 33-53
Author(s):  
Bayront Yudit Rumondor ◽  
Pakasa Bary
Keyword(s):  
Risk Taking ◽  
Capital Flows ◽  
Emerging Market ◽  
Capital Inflows ◽  
Bank Risk ◽  
Portfolio Investment ◽  
Industry Level ◽  
Country Level ◽  
Risk Taking Behavior ◽  
The Impact

AbstractThis paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

scholarly journals MONETARY POLICY IN ADVANCED ECONOMIES DURING THE GLOBAL FINANCIAL CRISIS: LESSONS FOR LITHUANIA

Ekonomika ◽  
2014 ◽  
Vol 93 (1) ◽  
pp. 40-56
Author(s):  
Birutė Visokavičienė
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Empirical Studies ◽  
Policy Instruments ◽  
Policy Tools ◽  
Currency Board ◽  
Advanced Economies ◽  
Maastricht Criteria

Abstract. The main goal of the research is to develop monetary policy tools and measures enabling to achieve macroeconomic goals of integration into the euro area in the immediate future. It is noted that until the introduction of the euro Lithuania does not have a monetary policy and applies the currency board regime pegging the litas invariably to the euro (hard peg regime). Therefore, it is not only difficult but also risky to try to achieve financial and economic stability in accordance with the relevant Maastricht criteria through fiscal policy measures alone. Monetary policy instruments are necessary to achieve price stability and the overall financial stability. Currently, Lithuania should address the problem of balancing the currency board regime and the Maastricht criteria as a macroeconomic objective through monetary policy tools and measures.The analysis of monetary policies of advanced economies and, first of all, of the euro area reveals the main features of transmission of the monetary policy to a real economy, which can contribute to the successful integration into the euro area. A systemic analysis of the monetary policy is based on monetary and economic theories, laws and patterns, scientific literature and empirical studies. The method used is the logical analysis and systemising of academic literature and modelling of the monetary policy. Such a methodological position enables the justification of the influence of the euro and monetary policy on the future development of the national economy.Key words: monetary policy, euro, exchange rate, inflation, indicators

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