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International Monetary Fund. Asia and Pacific Dept

Abstract

The global economy entered 2013 with receding tail risks as the U.S. fiscal cliff and an escalation of the euro area crisis had been averted. In the United States, activity, balance sheets, house prices, and credit were improving while major emerging economies were also seeing strengthening activity. In the euro area, however, economic prospects remain fragile, with weak activity extending to core countries. Meanwhile, financial conditions are ameliorating across the board, with equity prices rising to multiyear highs, volatilities declining, and credit spreads compressing (Figure 1.1). While downside risks remain significant, risks are now more balanced than they were at the time of the October 2012 Asia and Pacific Regional Economic Outlook Update (IMF, 2012d).

International Monetary Fund. Asia and Pacific Dept

Abstract

Sustained rapid growth, macroeconomic stability, and improvements in living standards are some of the remarkable achievements of Asian economies over the past decade. Nevertheless, important challenges remain, as countries strive to maintain robust long-term growth, reduce income inequality, and fight poverty. Against this background, this chapter assesses whether fiscal policy has contributed to lower output volatility in Asia in the last decade and discusses how it can help address the critical challenges ahead.

International Monetary Fund. Asia and Pacific Dept

Abstract

Slower growth in China, India, and Vietnam; prospects of persistently low growth in advanced economies; imminent demographic aging across large parts of East Asia—all have raised concerns in recent years about risks of a sustained growth slowdown in emerging Asia. In middle-income economies, fears of a “middle-income trap” have been growing.1 And indeed, as highlighted in Chapter 1, although Asia’s potential growth remains higher than that of other regions, various estimation techniques point to a reduction in trend growth since the 2008 global financial crisis.

Hali J. Edison, Michael W. Klein, Luca Antonio Ricci, and Torsten Sløk

This paper surveys the literature on the effects of capital account openness and stock market liberalization on economic growth and provides a synthesis in which we reconcile some of the different results presented in the literature. Various empirical measures used to gauge the presence of controls on capital account transactions and the liberalization of equity markets are discussed. We compare detailed measures of capital account controls that attempt to capture the intensity of enforcement with other indicators that simply capture whether controls are present. A detailed review of the literature is followed by an empirical section in which we trace the divergence in published results to differences in country coverage, sample periods, indicators of liberalization, and control variables across studies. Specifically, we show that when an institutional variable such as government reputation is added to the specification, the significance of capital account openness vanishes. Also, we demonstrate that enriching the specification by allowing for nonlinearities helps explain why different studies that ignore the nonlinear nature of the relationship find different results. [JEL. F32, F33, F36]

Mr. Akira Ariyoshi, Mr. Andrei A Kirilenko, Ms. Inci Ötker, Mr. Bernard J Laurens, Mr. Jorge I Canales Kriljenko, and Mr. Karl F Habermeier

Abstract

This paper examines country experiences with the use and liberalization of capital controls to develop a deeper understanding of the role of capital controls in coping with volatile capital flows, as well as the issues surrounding their liberalization. Detailed analyses of country cases aim to shed light on the motivations to limit capital flows; the role the controls may have played in coping with particular situations, including in financial crises and in limiting short-term inflows; the nature and design of the controls; and their effectivenes and potential costs. The paper also examines the link between prudential policies and capital controls and illstrates the ways in which better prudential practices and accelerated financial reforms could address the risks in cross-border capital transactions.

Ms. Carmen Reinhart and Mr. Mohsin S. Khan

Abstract

The developing economies of the Asia Pacific Economic Cooperation (APEC) have been the recipients of a considerable volume of capital inflows in the 1990s. Given the increased integration of capital markets, it is not surprising that monetary control became more difficult for many developing APEC economies. Formulating an appropriate policy response has naturally been important. The three papers that make up this Occasional Paper each examine different aspects of these issues.