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Author: Thomas D. Willett Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
International capital flows to developing countries have taken on considerable policy importance in recent years. There is disagreement, however, about whether financial capital mobility has become so high that developing countries have little ability to sterilize capital flows. This paper reviews several popular methods of estimating the degree of capital mobility for developing countries and shows that they are subject to potentially important upward biases due to inappropriate assumptions concerning the roles of domestic inflation and sterilization. Corrections for these factors can cut estimates of capital mobility by one half or more.
Author: Thomas D. Willett Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
International capital flows to developing countries have taken on considerable policy importance in recent years. There is disagreement, however, about whether financial capital mobility has become so high that developing countries have little ability to sterilize capital flows. This paper reviews several popular methods of estimating the degree of capital mobility for developing countries and shows that they are subject to potentially important upward biases due to inappropriate assumptions concerning the roles of domestic inflation and sterilization. Corrections for these factors can cut estimates of capital mobility by one half or more.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451941315 Category : Business & Economics Languages : en Pages : 16
Book Description
The degree of capital mobility in developing economies is seldom estimated, even though it is widely recognized to be an important element in determining the effects of stabilization policies. Instead, an economy is assumed to be open or closed mainly on grounds of analytical convenience. This paper develops a simple approach to modelling and measuring the degree of financial openness which is applicable to developing economies. Empirical estimation using data from a large number of developing countries suggests that the effective degree of capital mobility in such economies may be higher than is commonly assumed.
Author: Mr.Atish R. Ghosh Publisher: International Monetary Fund ISBN: 1451978820 Category : Business & Economics Languages : en Pages : 46
Book Description
This paper proposes a methodology for testing whether capital flows to developing countries are determined by economic fundamentals or by purely speculative forces. We use the intertemporal optimizing approach to current account determination as our benchmark for judging the behavior of capital flows. According to this approach, capital flows should act as a buffer to smooth consumption in the face of temporary shocks to national cash flow, defined as output less investment less government expenditures. The results are encouraging. For a large sample of developing countries, economic fundamentals are indeed found to be the most important determinant of capital flows.
Author: Peter J. Montiel Publisher: ISBN: Category : Capital movements Languages : en Pages : 72
Book Description
It is rare for developing countries to be strongly integrated with financial markets, but most developing countries must be regarded as financially open, according to new estimates.
Author: Martin Feldstein Publisher: University of Chicago Press ISBN: 0226241807 Category : Business & Economics Languages : en Pages : 500
Book Description
Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.
Author: Morris Goldstein Publisher: ISBN: Category : Languages : en Pages : 56
Book Description
In discussing the causes and consequences of large capital inflows to developing countries, the author emphasizes two things. First, although there are legitimate grounds for an optimistic long-term outlook on private capital flows to developing countries, there is little to suggest that the volatility of capital flows will end. In designing policy strategies to accomodate this volatility, a premium should be put on credibility, resilience, and flexibility. Second, country differences notwithstanding, host countries need to respect the basics of adjustment and finance in designing their policy response to large inflows. Host countries that want to keep using the nominal exchange rate as their key nominal anchor and that do not want to accept much appreciation in their real exchange rate must be prepared to tighten fiscal policy. This is the most reliable way to reduce aggregate demand, keep inflation in check, and limit deterioration of the current account. Regarding sterilization policy, domestic interest rates will be higher and the size of the inflow will be larger with sterilization than without it. Not that sterilization necessarily need be avoided; in the early stages of inflow, it can help moderate or even offset the induced expansion of domestic credit. But with high capital mobility, sterilization becomes more expensive and less effective the longer it is used. Effective regulation and supervision are important in ensuring the best use of large inflows of foreign resources. It makes a big difference, for example, if banks use their higher reserves to lend for productive investment and human capital formation than if they use them to fund speculative activities that eventually translate into nonperforming loans (and perhaps a large public sector liability as well). Careful assessment of credit risk and of maturity mismatches are essential if banks are to help the private sector earn a rate of return greater than the cost of capital. Similarly, good disclosure and accounting standards are essential for accurate pricing of risk in both banking and securities markets. These and similar measures are worth implementing even without large capital inflows. Beyond dealing with surges in capital inflows, host countries must decide the optimal speed at which they wish to move toward full capital account liberalization.
Author: Nadeem Ul Haque Publisher: ISBN: Category : Languages : en Pages : 16
Book Description
The degree of capital mobility in developing economies is seldom estimated, even though it is widely recognized to be an important element in determining the effects of stabilization policies. Instead, an economy is assumed to be open or closed mainly on grounds of analytical convenience. This paper develops a simple approach to modelling and measuring the degree of financial openness which is applicable to developing economies. Empirical estimation using data from a large number of developing countries suggests that the effective degree of capital mobility in such economies may be higher than is commonly assumed.
Author: Mr.Ayhan Kose Publisher: International Monetary Fund ISBN: 9781589062214 Category : Business & Economics Languages : en Pages : 68
Book Description
This study provides a candid, systematic, and critical review of recent evidence on this complex subject. Based on a review of the literature and some new empirical evidence, it finds that (1) in spite of an apparently strong theoretical presumption, it is difficult to detect a strong and robust causal relationship between financial integration and economic growth; (2) contrary to theoretical predictions, financial integration appears to be associated with increases in consumption volatility (both in absolute terms and relative to income volatility) in many developing countries; and (3) there appear to be threshold effects in both of these relationships, which may be related to absorptive capacity. Some recent evidence suggests that sound macroeconomic frameworks and, in particular, good governance are both quantitatively and qualitatively important in affecting developing countries’ experiences with financial globalization.
Author: Erlend Nier Publisher: International Monetary Fund ISBN: 1498352928 Category : Business & Economics Languages : en Pages : 35
Book Description
This paper assesses empirically the key drivers of private capital flows to a large sample of emerging market economies in the last decade. It analyzes the effect of the global financial cycle, measured by the VIX, on capital flows and investigates the role of fundamentals and country characteristics in mitigating or amplifying its effect. Using interaction models, we find the effect of the VIX to be non-linear. For low levels of the VIX, capital flows are driven by fundamental factors. During periods of stress, the VIX becomes the dominant driver of capital flows while other determinants, with the exception of interest rate differentials, lose statistical significance. Our results also suggest that the effect of global financial conditions on gross private capital flows increases with the host country’s level of financial sector development. Finally, our results imply that countries cannot fully insulate themselves from global financial shocks, unless creating a fragmented global financial system.
Author: Thomas D. Willett
Author: Thomas D. Willett
Author: International Monetary Fund
Author: Jeffrey A. Frankel
Author: Mr.Atish R. Ghosh
Author: Peter J. Montiel
Author: Martin Feldstein
Author: Morris Goldstein
Author: Nadeem Ul Haque
Author: Mr.Ayhan Kose
Author: Erlend Nier