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.

What’s in a Name? That Which We Call Capital Controls

2020 ◽  
Author(s):  
Atish R Ghosh ◽  
Jun Il Kim ◽  
Mahvash S Qureshi
Keyword(s):  
Gold Standard ◽  
Capital Controls ◽  
Capital Inflows ◽  
Macroeconomic Policies ◽  
Signaling Model ◽  
Advanced Economies ◽  
Capital Outflows ◽  
Guilt By Association ◽  
Autocratic Regimes ◽  
Laissez Faire

Abstract This paper investigates why controls on capital inflows have a bad name by tracing how capital controls have been used and perceived since the laissez-faire era of the classical gold standard. While advanced economies often employed capital controls to tame inflows during the last century, we conjecture that several factors undermined their subsequent use—most notably, a “guilt by association” with controls on capital outflows, which have typically been employed by autocratic regimes or those with failed macroeconomic policies. We formalize the idea of a possible guilt by association between inflow controls and outflow controls in a signaling model and provide some empirics consistent with it.

scholarly journals A comparative analysis of the financial liberalization in Turkey and Brazil

2020 ◽  
Vol 67 (2) ◽  
pp. 207-224
Author(s):  
Gover Tugrul
Keyword(s):  
Comparative Analysis ◽  
Capital Flows ◽  
Financial Integration ◽  
Financial Liberalization ◽  
Capital Controls ◽  
The Other ◽  
Capital Account ◽  
Other Hand ◽  
Capital Outflows ◽  
The One

The objective of this study is to explain the financial liberalization processes in Turkey and Brazil, to analyze the external financial liberalization processes and the financial integration indices and to compare the developments in the financial integration indices of Turkey and Brazil during the period 1980-2013. Our analysis revealed that, on the one hand, Brazil has continued its external liberalization process since the 1990s, but on the other hand, Brazil used two main tools to manage the capital flows, namely, capital controls and liberalization of capital outflows. In contrast, Turkey did not employ these tools following liberalization of the capital account.

Introduction

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Balance Sheet ◽  
Policy Management ◽  
Macroeconomic Policies ◽  
Macroprudential Policies ◽  
Macroeconomic Imbalances ◽  
Cyclical Component ◽  
Active Policy

This introductory chapter provides an overview of capital flows to emerging markets. In principle, cross-border capital flows to emerging markets have the potential to bring several benefits; in practice, however, such flows are inherently risky—though some forms may be worse than others—potentially widening macroeconomic imbalances and creating balance-sheet vulnerabilities. As such, capital flows require active policy management, which might mean mitigating their undesirable consequences using macroeconomic and macroprudential policies, or controlling their volume and composition directly using capital account restrictions, or both. By the same token, if the inflow phase is successfully managed—through the use of structural measures to steer flows toward less risky types of liabilities, and the use of macroeconomic policies, prudential measures, and capital controls for abating the cyclical component of flows and their consequences—the economy is likely to benefit from foreign capital and to remain resilient when flows recede or reverse.

Foreign Capital Flows to Emerging Markets: a Test of Policy Arbitrage

2004 ◽  
Vol 5 (1) ◽  
pp. 21-32
Author(s):  
Anand Shetty ◽  
John Manley
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Economic Policies ◽  
National Economic ◽  
Foreign Capital Flows ◽  
Foreign Capital Inflows ◽  
Mexican Peso

Private capital that dominated the foreign capital inflows to emerging markets in the 1990s has been linked to recent financial crises in these markets. This linkage has raised questions about the market’s ability to discipline the flow of capital to emerging markets and the role of policy arbitrage. Policy-arbitrage hypothesis states that international capital flows will arbitrage across national economic policies in search of sound markets. This paper examines the pattern of changes in the foreign capital inflows to emerging markets in the 1990s and tests the policy-arbitrage hypothesis using 22 country-data for a period immediately following the Mexican peso crisis. The test results support the policy-arbitrage hypothesis.

Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (07) ◽  
Author(s):  
Keyword(s):  
Financial Stability ◽  
Capital Controls ◽  
Policy Coordination ◽  
Policy Advice ◽  
Capital Inflows ◽  
Policy Framework ◽  
Recent Experience ◽  
Macroeconomic Policies ◽  
Macroprudential Policies ◽  
Growth Prospects

Emerging markets (EMs) are experiencing a surge in capital inflows, lifting asset prices and growth prospects. While inflows are typically beneficial for receiving countries, inflow surges can carry macroeconomic and financial stability risks. This paper reviews the recent experience of EMs in dealing with capital inflows and suggests a possible framework for IMF policy advice on the spectrum of measures available to policymakers to manage inflows, including macroeconomic policies, prudential measures and capital controls. Illustrative applications of this framework suggest that it may be appropriate for several countries, based on their current circumstances, to consider prudential measures or capital controls in response to capital inflows. The suggested framework is intended to inform staff policy advice to all Fund members with open capital accounts. It forms part of a broader effort to sharpen Fund surveillance, preserve evenhandedness, and foster greater global policy coordination. As indicated in the Supplement to this paper, this broader effort includes the development of “global rules of the game” on macroprudential policies, capital account liberalization, and reserve adequacy, and the preparation of spillover reports assessing spillovers from the five systemic economies—all of which will inform the current and broader framework being developed.

Push vs.  Pull Factors of Capital Flows Revisited: A Cross-country Analysis

2019 ◽  
Vol 18 (1) ◽  
pp. 39-60 ◽  
Author(s):  
Tae Soo Kang ◽  
Kyunghun Kim
Keyword(s):  
Interest Rates ◽  
Capital Flows ◽  
Emerging Market ◽  
Capital Inflows ◽  
Pull Factors ◽  
Empirical Examination ◽  
Advanced Economies ◽  
Alternative Measures ◽  
Country Analysis ◽  
Push And Pull

This paper examines the major determinants of net capital inflows. To account for meaningful differences in responses, 47 countries used for the empirical analysis are divided into advanced economies (AEs) and emerging market economies (EMEs). These countries are further divided into subgroups to consider the heterogeneous determinants for AEs and EMEs. Our empirical examination reveals notable heterogeneity across country groups. Both push and pull factors are statistically significant in AEs, but push factors play a larger role for EMEs, though pull factor influence is observed in a few EME subgroups. Our empirical findings are robust to alternative model specifications, alternative measures of capital flows and interest rates, as well as the use of an alternative sample period.

What Do Countries Do?

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Interest Rate ◽  
Emerging Markets ◽  
Emerging Market ◽  
Policy Instruments ◽  
Capital Controls ◽  
Central Banks ◽  
Capital Inflows ◽  
Institutional Characteristics ◽  
Policy Responses ◽  
The Face

This chapter examines how emerging markets typically respond to capital inflows in practice. Confronted by an inflow surge, national authorities respond through a combination of policy instruments—both macroeconomic tools and less orthodox measures. While the thrust of the policy responses across countries is largely the same, there are differences in the specific instruments deployed that likely depend on economic, historical, and institutional characteristics. Central banks seem to use the policy interest rate to address inflation and overheating concerns associated with capital inflows, and to reduce currency appreciation. Most emerging market central banks intervene quite heavily in the face of inflows, nearly always sterilizing that intervention. Finally, emerging market economies also seem to be using capital controls and macroprudential measures in the face of large inflows, but capital controls appear less frequently, often acting as a backstop to other measures.

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