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)| false Magud, Nicolas, and Carmen M. Reinhart, 2007, “ Capital Controls: An Evaluation,” in Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, ed. by ( Sebastian Edwards Cambridge, Massachusetts: National Bureau of Economic Research).
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We focus on emerging Asia, in other words, Asia excluding Japan, Australia, New Zealand, and low income countries. Throughout the paper, NIEs refer to Hong Kong SAR, Korea, Singapore, and Taiwan Province of China whereas ASEAN-5 refers to Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
Specifically, we exclude all flows to the general government and monetary authorities within the “other investment” component of the financial account, which is expected to be largely driven by nonmarket driven factors (e.g., bilateral sovereign loans and transactions with the IMF). This concept of capital flows is different from the “private” concept used in IMF (2007), as it still includes nonresident purchases of government bonds.
The trend is taken to be the eight quarter moving average. There are a number of other supplementary rules to avoid very short gaps between episodes of surges: (i) if only one quarter with positive inflow separates two adjacent surges, it is combined with the two adjacent episodes to form one continuous episode; (ii) if inflows remain elevated following the first period of a surge, they are counted in the surge (the elevated level is defined as above 50 percent of the flow in the previous [surge] quarter); and (iii) if inflows dip for one period following a surge and then return to elevated levels, they are counted in the surge. We have also made a correction to take into account large errors and omissions in the balance of payments that could represent unrecorded capital flows. Specifically, we find that if the errors and omissions are counted as part of net capital flows, Vietnam would stop qualifying as a surge after mid-2008 and we have made that adjustment.
Given how we define surges, capital flow data for future quarters may result in some changes in the categorization of ongoing surges.
Note that IMF (2011c), using a different methodology, also identifies three large gross capital inflows episodes for China since 1990s, which covers longer periods than this paper (1993Q1-98Q2; 2002Q3-08Q2; 2009Q3-ongoing). For India, it identifies the period since 2009Q2 and ongoing as the current inflow episode, which is also longer than this paper.
It is worth noting that in Korea and several other countries capital outflows (presumably including resident capital flight) are at times much larger than the accumulation of past inflows and pose a major risk to the economy.
However, Broner and others (2011) show that the volatility of net capital flows has generally increased less than the volatility of grow capital flows because gross capital inflows and gross capital outflows are positively correlated.
A z-score represents the deviation from the long-term average expressed in the number of standard deviations. Green signifies less than 1.5 standard deviations above, orange 1.5–2 standard deviations above, and red greater than 2 standard deviations above. For methodologies, see Annex 1.9 of IMF (2010c).
Pre-Asian crisis data is not available for China, India, Malaysia, and Taiwan Province of China.
More specifically, these measures comprise: (i) residency-based measures, affecting cross-border financial activity that discriminate on the basis of residency—often referred to as capital controls; and (ii) other measures that do not discriminate on the basis of residency, but are nonetheless designed to influence flows, including some macroprudential measures (IMF, 2011c).
Further analysis suggests that the significance of these results is driven by property cooling measures introduced in Singapore in the late 1990s and early 2000s. These included lowering LTV ceilings, hiking stamp duties and capital gains taxes, and measures to tighten access to public housing. Given the unique nature of Singapore (a city state with a large share of public housing), it’s not clear how applicable these results are to other countries.