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    Managing Volatile Capital Inflows: The Experience of the 1990s

    Reisen, Helmut | June 1996
    Abstract
    The paper aims at deriving lessons for macroeconomic policy in developing countries in response to heavy temporary capital inflows as witnessed in the early 1990s. First, after spelling out the major reasons why policymakers should be concerned about cyclical inflows, the volatility of different capital-account items {bank lending, foreign direct investment, and portfolio flows} is assessed. Second, the recent capital flows are compared between Asia and Latin America for similarities and differences. Third, the paper discusses for 13 heavy capital importers in Asia and Latin America the extent to which they met the prerequisites postulated by the sequencing literature to avoid macroeconomic complications of heavy capital inflows, and how they used these external savings in light of the debt cycle theory. Finally, the paper draws five policy lessons for the next episode of heavy capital inflows: identify the origin of rising foreign exchange reserves; identify the limits of foreign debt; discourage above-limit, short-term inflows; observe the tradeoff between price stability and competitiveness; and design policies to target monetary aggregates and exchange rates, including fiscal policy, sterilized intervention, reserve requirements, and exchange rate management.
    Citation
    Reisen, Helmut. 1996. Managing Volatile Capital Inflows: The Experience of the 1990s. © Asian Development Bank. http://hdl.handle.net/11540/5370.
    Keywords
    Macroeconomic
    Macroeconomic Analysis
    Macroeconomic Framework
    Macroeconomic Models
    Macroeconomic Performance
    Macroeconomic Planning
    Macroeconomic Policies
    Macroeconomic Reform
    Macroeconomic Stabilization
    Social condition
    Economic dependence
    Economic assistance
    International monetary relations
    International monetary relations
    International trade
    National accounting
    Market
    Exchange
    Comparative economics
    Index number
    Monetary policy
    Value analysis
    Adjustment cost
    Transaction cost
    Conditionality
    International relations
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    Citable URI
    http://hdl.handle.net/11540/5370
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    Author
    Reisen, Helmut
    Theme
    Economics
     
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise