The Effectiveness of Capital Controls and Prudential Policies in Managing Large Inflows

Habermeier, Karl; Kokenyne, Annamaria; Baba, Chikako

doi:10.5089/9781463902896.006

“…One reason for the relatively limited effectiveness of capital controls in the countries studied could be that these countries did not have the legal, institutional and administrative mechanisms for implementing comprehensive controls (Habermeier et al, 2011). Capital controls may be more effective in countries like India and China where controls are permanent, where the administrative machinery for imposing controls has not yet been dismantled.…”

Section: Introductionmentioning

confidence: 99%

“…This has been identified as one of the periods in which India faced a credit boom. 10 There is now increasing interest in the case for prudential capital controls for managing macroeconomic and financial stability challenges during a capital surge (Ostry et al, 2012;Korinek, 2011;Habermeier et al, 2011). Alongside capital controls, India imposed counter-cyclical macro-prudential measures on the banking sector.…”

Section: Asset Pricesmentioning

confidence: 99%

See 1 more Smart Citation

Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?

Patnaik¹,

Shah²

2012

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The present debate on capital controls emphasises their potential role as tools for macroeconomic and financial stability. The effectiveness of these tools may depend on whether a country has the legal and administrative machinery to implement capital controls. We contribute to the analysis of the costs and benefits of capital controls by studying the experience of India, a country that has a system of capital controls that had never been dismantled. We find that when used as tools of macroeconomic policy, during a capital surge, the Indian experience appears to be similar to that of other countries.JEL Codes: F32, F33

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“…In a number of recent papers, the IMF advocates for capital controls under certain circumstances to reduce the volatility of capital inflows (Ostry et al 2010;2011;Habermeier, Kokenyne, and Baba 2011). This break with the long-standing tenet of free capital mobility at the IMF reflects the growing concerns that global investors have become increasingly prone to displaying excessive optimism or pessimism and herding as they often overreact to market developments-both favorable and unfavorable.…”

Section: Advocacy Of Capital Controlsmentioning

confidence: 99%

International Monetary Reform: A Critical Appraisal of Some Proposals

Park

¹

,

Wyplosz

²

2014

Reform of the International Monetary System

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractThis paper reviews some of the current debates on the reform of the international monetary system.

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“…The differences between this sort of tax and an Unremunerated Reserve Requirement (URR) are subtle (IMF (2011c, Box page 28), although the argument made here suggests that the tax should be applied to the entire foreign asset holding for the full period of the investment, rather than apply for a restricted period only. For a recent IMF assessment of the effectiveness of these controls, see Habermeier, Kokenyne, and Baba (2011). 36 This approach may not always fit with overall macro objectives.…”

Section: A Better Approachmentioning

confidence: 99%

Rethinking Capital Flows for Emerging East Asia

Grenville

¹

2014

Reform of the International Monetary System

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractSince the 1980s, emerging countries have been urged to welcome foreign capital inflows. The result has often been a pattern of surges, where excessive inflows were followed by damaging "sudden stops" and reversals. This was dramatically evident in the Asian crisis of 1997-1998. Since that crisis, the emerging countries of East Asia have typically run current account surpluses and have accumulated substantial foreign exchange reserves. This has kept them largely protected from the impact of volatile capital flows, but this strategy is neither sustainable nor optimal.What is needed is a strategy that makes use of the potential benefits of capital "flowing downhill" (that would require these countries to run current account deficits) while at the same time protecting them from both the excessive inflows and the reversals. This strategy needs to take account not only of the fickle nature of the capital flows, but the structurally-higher profitability which is characteristic of emerging countries, which motivates the excessive inflows. This strategy would require more active management of both exchange rates and capital flows than has been the accepted "best practice". This requires a substantial shift in the current policy mindset. The International Monetary Fund has shifted some distance on this issue, but has further to go.

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The Effectiveness of Capital Controls and Prudential Policies in Managing Large Inflows

Cited by 59 publications

References 31 publications

Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?

Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?

International Monetary Reform: A Critical Appraisal of Some Proposals

Rethinking Capital Flows for Emerging East Asia

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