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Managing the Tide: How Do Emerging Markets Respond to Capital Flows?
Author:
Mr. Atish R. Ghosh
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Mr. Jonathan David Ostry
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Miss Mahvash S Qureshi
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 069
Language:
English
Publication Date:
27 Mar 2017
DOI:
https://doi.org/10.5089/9781475589207.001
ISBN:
9781475589207
ISSN:
1018-5941
Pages:
41
Keywords:
WP; capital control; capital flow; inflow control; exchange rate; outflow control; capital flows; policy toolkit; capital controls; emerging market economies; FX intervention; prudential measure; Capital inflows; Central bank policy rate; Output gap; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines whether—and how—emerging market economies (EMEs) respond to capital flows to mitigate their untoward consequences. Based on a sample of about 50 EMEs over 2005Q1–2013Q4, we find that EME policy makers respond proactively to capital inflows by using a combination of policy tools: central banks raise the policy interest rate to address economic overheating concerns; intervene in the foreign exchange market to resist currency appreciation pressures; tighten macroprudential measures to dampen credit growth; and deploy capital inflow controls in the face of competitiveness and financial-stability concerns. Contrary to conventional policy advice to EMEs, we find no evidence of counter-cyclical fiscal policy in the face of capital inflows. Overall, policies are more likely to respond, and used in combination, during inflow surges than in more normal times.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund