Coping with Capital Inflows

Coping with Capital Inflows

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This paper reviews the experiences of a number of European countries in coping with capital inflows. It describes the nature of the inflows, their implications for macroeconomic and financial stability, and the policy responses used to cope with them. The experiences suggest that as countries become more integrated with international financial markets, there is little room to regulate capital flows effectively. The most effective ways to deal with capital inflows would be to deepen the financial markets, strengthen financial system supervision and regulation, where needed, and improve the capacity to design and implement sound macroeconomic and financial sector policies. These actions will help increase the absorption capacity and resilience of the economies and financial systems to the risks associated with the inflows.Contagion effects led to a reversal of inflows from the Czech Republic in 1997 and reduced inflows into Croatia in 1998. For a number of the countries, an additional factor in recent years has been the rapid growth of bank credit to the ... have enforced credit management techniques on their subsidiaries similar to those in their home institutions (see e.g., Adahl, 2002, and Schipke, and others, 2004).

Title:Coping with Capital Inflows
Author: David Vávra, Ms. Inci Ötker, Barry Topf, Zbigniew Polanski
Publisher:International Monetary Fund - 2007-07-01

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