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This paper borrows the tradition of estimating policy reaction functions from monetary policy literature to ask whether capital controls respond to macroprudential or mercantilist motivations. I explore this question using a novel, weekly dataset on capital control actions in 21 emerging economies from 2001 to 2015. I introduce a new proxy for mercantilist motivations: the weighted appreciation of an emerging-market currency against its top five trade competitors. This proxy Granger causes future net initiations of non-tariff barriers in most countries. Emerging markets systematically respond to both mercantilist and macroprudential motivations. Policymakers respond to trade competitiveness concerns by using both instruments—inflow tightening and outflow easing. They use only inflow tightening in response to macroprudential concerns. Policy is acyclical to foreign debt; however, high levels of this debt reduces countercyclicality to mercantilist concerns. Higher exchange rate pass-through to export prices, and having an inflation targeting regime with non-freely floating exchange rates, increase responsiveness to mercantilist concerns.

United States --- Exports and Imports --- Foreign Exchange --- Macroeconomics --- Money and Monetary Policy --- International Investment --- Long-term Capital Movements --- Fiscal Policy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- International Lending and Debt Problems --- International economics --- Monetary economics --- Currency --- Foreign exchange --- Capital controls --- Fiscal stance --- Bank credit --- Exchange rates --- Foreign currency debt --- Balance of payments --- Fiscal policy --- Money --- External debt --- Capital movements --- Credit --- Debts, External

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This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean. We discuss the implications of limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level. We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system, and ways to address these concerns.

Zonder onderwerpscode: economie

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In this paper, we explore the link between stress in the domestic financial sector and the capital flight faced by countries in the 2008-9 global crisis. Both the timing of emergence of internal financial stress in developing economies, and the size of the peak-trough declines in the stock price indices was comparable to that in high income countries, indicating that there was no decoupling, even before Lehman Brothers' demise. Deleveraging of OECD positions seemed to dominate the patterns of capital flows during the crisis. While high income countries on average saw net capital inflows and net portfolio inflows during the crisis quarters, compared to net outflows for developing economies, the indicators of banking sector stress were higher for high income economies on average than for developing economies. Internal and external distress during crisis was closely interlinked with common underlying causes of both the severity of stress during the crisis and the recovery. External vulnerabilities were important in both phases, and higher international reserves did not insulate countries from stress.

Zonder onderwerpscode: economie

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Most of the recent policy debate on the appropriateness of capital controls has focused on the use of capital inflow controls in the face of surges in net capital inflows. However, countries that have existing capital outflow controls have another potential tool to reduce net capital inflows (NKI) - the liberalization of outflows. It follows that the decision to liberalize outflow controls in response to surging inflows could potentially involve weighing the benefits of reducing NKI by facilitating greater outflows against the lost revenues from financial repression. In this paper, we weigh the evidence on the complex motivations for capital outflow controls policy by examining the various macroeconomic and fiscal factors at the time these controls were liberalized. Our results indicate that concerns related to net capital inflows took predominance over fiscal concerns in the decision to liberalize capital outflow controls in the 2000's. Emerging market economies (EMEs) facing sudden stops, high volatility in net capital inflows and higher balance sheet exposures liberalized less. Countries eased more in response to higher net capital inflows, and when these inflows translated into higher appreciation pressure in the exchange market, higher real exchange rate volatility, and greater accumulation of reserves. Unlike the 1980's, we find very limited importance of fiscal variables in explaining liberalization of capital outflow controls. This lack of association is consistent with the decline in repression revenues and growth accelerations for EMEs in the 2000's.

Zonder onderwerpscode: economie

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The Fund’s Institutional View (IV) recognizes the benefits of and risks associated with capital flows. Since the IV was adopted, a growing literature has provided additional insights into the benefits and risks from capital flows. This note summarizes the insights from the recent literature and the experiences of staff since the adoption of the IV that have informed this review.

Capital market --- Balance of payments --- Capital flow management --- Capital flows --- Capital inflows --- Capital movements --- Currency --- Economics --- Exports and Imports --- Foreign Exchange --- Foreign exchange --- Institutional View on capital flows --- International economics --- International Investment --- Long-term Capital Movements --- Monetary economics --- Monetary Policy --- Monetary policy --- Money and Monetary Policy --- Political Economy --- Political economy