Reinhart, Carmen and Reinhart, Vincent (2011): The Capital Inflow “Problem” Revisited.
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Capital inflows can be a mixed blessing, especially in economies with thin domestic financial markets and when driven by investors with a short-term focus. Many levers of policy can be applied to resist the effects of the inflows. One that has been widely relied upon has been currency intervention. Key to that appears to be keeping their bilateral exchange rate stable vis-à-vis the U.S. dollar. But this requires them to resist currency appreciation and accumulate dollar reserves when the anchor country is mired in financial problems and keeps monetary policy accommodative in an unprecedented manner. The willingness of emerging market economies to limit exchange rate fluctuations will be tested as monetary policy in advanced economies remains geared toward domestic considerations. Meanwhile, some advanced economies will be looking to finance large deficits and to roll over large debts. In that environment, prior reticence toward capital controls and other restrictions on finance may well lift. For emerging markets, this insulates them from monetary policy in advanced economies that may be inappropriate for domestic circumstances. For advanced economies, this limits the competition for the debt they dearly have to sell. In such a world, the policy tools we discussed will be increasingly relied upon.
|Item Type:||MPRA Paper|
|Original Title:||The Capital Inflow “Problem” Revisited|
|Keywords:||capital flows, reserves, exchange rates,capital controls|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General
F - International Economics > F3 - International Finance > F30 - General
|Depositing User:||Carmen Reinhart|
|Date Deposited:||11. Mar 2011 20:14|
|Last Modified:||12. Feb 2013 08:40|
Calvo, Guillermo A.,Leonardo Leiderman, and Carmen M. Reinhart, “The Capital Inflows Problem: Concepts and Issues,” Contemporary Economic Policy, Vol. XII No. 3, July 1994, 54-66.
Calvo, Guillermo and Carmen Reinhart (2002). “Fear of Floating,” Quarterly Journal of Economics, 117: 379-408.
Reinhart, Carmen M. and Vincent R. Reinhart (2008). “Capital Flow Bonanzas: An Encompassing View of the Past and Present,” in Jeffrey Frankel and Francesco Giavazzi (eds.) NBER International Seminar in Macroeconomics 2008, (Chicago: Chicago University Press for the NBER, 2009). 1-54
Reinhart, Carmen and Vincent Reinhart (2010). “After the Fall.” Federal Reserve Bank of Kansas City Jackson-Hole Symposium.
Reinhart, Carmen M. and Vincent R. Reinhart (2011). “Pride Goes before a Fall: Federal Reserve Policy and Asset Markets,” Cato Journal, Vol. 31, No.3, forthcoming.
Reinhart, Carmen M. and Kenneth S. Rogoff (2009). This Time It’s Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press).