Capital Inflows: Macroeconomic Implications and Policy Responses

By Roberto Cardarelli, Selim Elekdag, M. Ayhan Kose. Social Science Research Network, 2009

232 citations recorded by the source corpus.

This paper examines the macroeconomic implications of and policy responses to surges in private capital inflows across a large group of emerging and advanced economies. In particular, we identify 109 episodes of large net private capital inflows to 52 countries over 1987-2007. Episodes of large capital inflows are often associated with real exchange rate appreciations and deteriorating current account balances. More importantly, such episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly. A comprehensive assessment of various policy responses to the large inflow episodes leads to three major conclusions. First, keeping public expenditure growth steady during episodes can help limit real currency appreciation and foster better growth outcomes in their aftermath. Second, resisting nominal exchange rate appreciation through sterilized intervention is likely to be ineffective when the influx of capital is persistent. Third, tightening capital controls has not in general been associated with better outcomes.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b58f9214ebb558235329fcba15549bf39736e611

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Citations in the corpus

Bank Asset Quality in Emerging Markets: Determinants and Spillovers (2012, background): “See Levchenko and Mauro (2007), Cardarelli et al. (2009), Tong and Wei (2010), Borio and Diyata (2011), Pirovano et al. (2011), and Forbes and Warnock (2011). large pre-crisis exposure to non-FDI capital inflows tends to be associated with a more severe credit crunch during the crisis but that…”
Capital Flows to Emerging Market Economies: A Brave New World? (2013, unknown): “For example, Cardarelli et al. (2009) uses data on net inflows to 52 countries over the period 1987 to 2007 to argue that, although capital inflows tend to be associated with an acceleration of GDP initially, subsequently growth can drop.”
Large Capital Inflows, Sectoral Allocation and Economic Performance (2015, methodology): “The work closest to our paper is research by Cardarelli et al. (2010) and Caballero (2014), both of whom also examine episodes in which the level of capital inflows is unusually high.”
Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?: Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom-Bust Cycles (2012, unknown): “…deviations of one s.d., intense bonanzas as deviations of two s.d. and mild bonanzas as deviations of 0.5 s.d. Similar methods are employed by Gourinchas et al. (2001) and Mendoza and Terrones (2008) for lending booms, and by Cardarelli et al. (2010) and Forbes and Warnock (2011) for capital flows.”
Capital Flows and Financial Stability: Monetary Policy and Macroprudential Responses (2011, unknown): “(16) The total capital in the economy is Kt = KF t +K D t .”