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Abstract

Developing countries fortunate enough to experience capital inflows haveseen rising levels of investment and enhanced economic growth. Capitalinflows have a negative side, however, in that they tend to appreciatethe domestic currency, making exports less competitive, and to encourageinflation. One defense against these destabilizing effects is to sterilize capital inflows by reducing the domestic component of themonetary base through the various initiatives explained in thispamphlet.

© 1997 International Monetary Fund

ISBN: 9781557756329

Published February 1997

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Preface

The Economic Issues series was inaugurated in September 1996. Its aim is to make available to a broad readership of nonspecialists some of the economic research being produced in the International Monetary Fund on topical issues. The raw material of the series is drawn mainly from IMF Working Papers, technical papers produced by Fund staff members and visiting scholars, as well as from policyrelated research papers. This material is refined for the general readership by editing and partial redrafting.

The following paper draws on material originally contained in IMF Working Paper 96/53, “Implications of a Surge in Capital Inflows: Available Tools and Consequences for the Conduct of Monetary Policy,” by Jang-Yung Lee, an economist in the IMF’s Monetary and Exchange Affairs Department. Neil Wilson prepared the present version. Readers interested in the original Working Paper may purchase a copy from IMF Publication Services ($7.00).

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