Managing Financial Integration and Capital Mobility-Policy Lessons from the Past Two Decades

Abstract

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. Abstract The accumulated experience of emerging markets over the last two decades has laid bare the tenuous links between external financial integration and faster growth on the one hand and the proclivity of such integration to fuel costly crises on the other. These crises have not gone without learning. During the 1990s and 2000s, emerging markets converged to the middle ground of the policy space defined by the macroeconomic trilemma, with growing financial integration, controlled exchange rate flexibility and proactive monetary policy. The OECD countries moved much faster towards financial integration, embracing financial liberalization, opting for a common currency in Europe, and for flexible exchange rates in other OECD countries. Following their crises of 1997-2001, emerging markets added financial stability as a goal, self-insured by building up international reserves and adopted a public finance approach to financial integration. The global crisis of 2008-09, which originated in the financial sector of advanced economies, meant that the OECD "overshot" the optimal degree of financial deregulation while the remarkable resilience of the emerging markets validated their public finance approach to financial integration. The story is not over: with capital flowing in droves to emerging markets once again, history could repeat itself without dynamic measures to manage capital mobility as part of a comprehensive prudential regulation effort. Terms of use: Documents in

Cost of foreign reserve accumulation in emerging market and developing economies

“…As prior to the growing financial globalization and the recent escalation of financial crises, foreign exchange reserves were mainly used for managing the current account which was the only source of vulnerability in the balance-of-payments. Consequently, countries had to have enough foreign reserves to meet unexpected external disturbances which can cause a sudden stop in essential imports (Fischer, 2001;Wyplosz, 2007;Aizenman and Pinto, 2013). Using the imports rule allows us to distinguish the cost of current account-related reserve accumulation from the cost of precautionary capital account-related reserve accumulation.…”

Evaluating the Influence of CEFTA Membership on Financial Integration: An Empirical Panel Data Analysis

“…Agenor (2001), for instance, explored the merits and demerits of IFI, comparing 28 countries from 1980-1998. This foundational research has been frequently referenced in empirical studies assessing the influence of various macro-financial variables on IFI variations across different countries (Quinn et al, 2011;Aizenman & Pinto, 2011). Additionally, Lane & Milesi-Feretti (2006) probed well-developed financial systems in OECD countries using their "External Wealth of Nations" database, which incorporated revised methodologies and changes in the composition of international financial positions (IFS).…”

Capital flows to emerging economies during and after the global financial crisis in 2008

“…Indeed, appreciation raises in value the export and depreciates the import, which has negative effects over domestic rate of unemployment, but also causes deficit of current account. Thus, national currencies in Asian emerging markets, from the middle of 2009 and up to now, appreciated for about 5-6% 1 . Alongside, in India and Indonesia, national currencies, during the same period, appreciated for even 12% (Caruana, 2011).…”