Abstract
We analyze recent theoretical advances in the area of capital flow management and compare them with the IMF’s policy frameworks in the area, as laid out in the IMF’s Institutional View and related documents. Although the Institutional View represented an important leap forward, we discuss several tensions with the academic literature. We also emphasize the important role that the IMF guidance could play in building a better set of policy instruments to deal with volatile capital flows. More broadly, individual countries need sufficient policy space to pursue their individual welfare objectives. Finally, we propose how to strengthen the IMF’s analytical framework for international spillovers.
Funding source: Independent Evaluation Office of the IMF
Acknowledgements
The author thanks Charles Collyns, Gita Gopinath, Olivier Jeanne, Sebnem Kalemli-Özcan, Prakash Loungani, Alessandro Rebucci and Joseph Stiglitz for thoughtful comments and conversations on the topic.
-
Research funding: Financial support from the IEO is gratefully acknowledged.
References
Abdelal, R. 2006. “Writing the Rules of Global Finance: France, Europe, and Capital Liberalization.” Review of International Political Economy 13 (1): 1–27, https://doi.org/10.1080/09692290500396602.Search in Google Scholar
Abdelal, R. 2007. Capital Rules: The Construction of Global Finance. Cambridge: Harvard University Press.Search in Google Scholar
Adrian, T., C. J. Erceg, J. Lindé, P. Zabczyk, and J. Zhou. 2020. A Quantitative Model for the Integrated Policy Framework. IMF Working Paper 20/122.10.5089/9781513549668.001Search in Google Scholar
Aghion, P., P. Bacchetta, and A. Banerjee. 2001. “Currency Crises and Monetary Policy in an Economy with Credit Constraints.” European Economic Review 45 (7): 1121–50, https://doi.org/10.1016/s0014-2921(00)00100-8.Search in Google Scholar
Articles of Agreement of the International Monetary Fund. 1944. Bretton Woods, New Hampshire. Available at https://www.imf.org/external/pubs/ft/aa/index.htm.Search in Google Scholar
Bagwell, K., and R. W. Staiger. 1999. “An Economic Theory of GATT.” The American Economic Review 89 (1): 215–48, https://doi.org/10.1257/aer.89.1.215.Search in Google Scholar
Bagwell, K., and R. W. Staiger. 2001. “Domestic Policies, National Sovereignty, and International Economic Institutions.” Quarterly Journal of Economics 116 (2): 519–62, https://doi.org/10.1162/00335530151144096.Search in Google Scholar
Bagwell, K., and R. W. Staiger. 2004. The Economics of the World Trading System. Cambridge, MA: MIT Press.Search in Google Scholar
Basu, S., E. Boz, G. Gopinath, F. Roch, and Filiz Unsal. 2020. A Conceptual Model for the Integrated Policy Framework, IMF Working Paper 20/121.10.5089/9781513549729.001Search in Google Scholar
Benigno, G., and others. 2016. “Capital Controls or Exchange Rate Policies? A Pecuniary Externality Perspective.” Journal of Monetary Economics 84: 147–65, https://doi.org/10.1016/j.jmoneco.2016.10.004.Search in Google Scholar
Bhagwati, J. 1998. “The Capital Myth: The Difference between Trade in Widgets and Dollars.” Foreign Affairs 77 (3): 7–12, https://doi.org/10.2307/20048871.Search in Google Scholar
Bianchi, J. 2011. “Overborrowing and Systemic Externalities in the Business Cycle.” The American Economic Review 101 (7): 3400–26, https://doi.org/10.1257/aer.101.7.3400.Search in Google Scholar
Brainard, L. 2017. Cross-Border Spillovers of Balance Sheet Normalization. Remarks at Columbia/NY Fed Conference on “Normalizing Central Banks’ Balance Sheets”. Washington, DC: Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/newsevents/speech/brainard20170711a.htm.Search in Google Scholar
Caballero, R. J., and A. Krishnamurthy. 2003. “Excessive Dollar Debt: Financial Development and Underinsurance.” The Journal of Finance 58 (2): 867–93, https://doi.org/10.1111/1540-6261.00549.Search in Google Scholar
Calvo, G. 1998. “Capital Flows and Capital Market Crises: The Simple Economics of Sudden Stops.” Journal of Applied Economics 1: 35–54, https://doi.org/10.1080/15140326.1998.12040516.Search in Google Scholar
Campbell, J. R., and Z. Hercowitz. 2009. “Welfare Implications of the Transition to High Household Debt.” Journal of Monetary Economics 56 (1): 1–16, https://doi.org/10.1016/j.jmoneco.2008.09.002.Search in Google Scholar
Céspedes, L. F., R. Chang, and A. Velasco. 2004. “Balance Sheets and Exchange Rate Policy.” The American Economic Review 94 (4): 1183–93, https://doi.org/10.1257/0002828042002589.Search in Google Scholar
Chwieroth, J. M. 2008. “Normative Change from within: The International Monetary Fund’s Approach to Capital Account Liberalization.” International Studies Quarterly 52 (1): 129–58, https://doi.org/10.1111/j.1468-2478.2007.00494.x.Search in Google Scholar
Chwieroth, J. M. 2010. Capital Ideas: The IMF and the Rise of Financial Liberalization. Princeton: Princeton University Press.10.1515/9781400833825Search in Google Scholar
Chwieroth, J. M. 2014. “Controlling Capital: The International Monetary Fund and Transformative Incremental Change from within International Organisations.” New Political Economy 19 (3): 445–69, https://doi.org/10.1080/13563467.2013.796451.Search in Google Scholar
Costinot, A., G. Lorenzoni, and I. Werning. 2014. “A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation.” Journal of Political Economy 122 (1): 77–128, https://doi.org/10.1086/674425.Search in Google Scholar
Erten, B., A. Korinek, and J. A. Ocampo. 2021. “Capital Controls: Theory and Evidence.” Journal of Economic Literature 59 (1), https://doi.org/10.1257/jel.20191457.Search in Google Scholar
Everaert, L. 2020. Capital Flow Measures and Housing-Related Issues in Advanced Economies. IEO Background Paper No. BP/20-02/05 for IEO evaluation of “IMF Advice on Capital Flows”. Washington: International Monetary Fund.Search in Google Scholar
Everaert, L., and H. Genberg. 2020. IMF Advice on Capital Flows to Korea and Selected ASEAN Economies. IEO Background Paper No. BP/20-02/07 for IEO evaluation of “IMF Advice on Capital Flows”. Washington: International Monetary Fund.Search in Google Scholar
Farhi, E., and I. Werning. 2014. “Dilemma Not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows.” IMF Economic Review 62: 569–605. Washington: International Monetary Fund, https://doi.org/10.1057/imfer.2014.25.Search in Google Scholar
Farhi, E., and I. Werning. 2016. “A Theory of Macroprudential Policies in the Presence of Nominal Rigidities.” Econometrica 84 (5): 1645–704, https://doi.org/10.3982/ecta11883.Search in Google Scholar
Fleming, J. M. 1962. “Domestic Financial Policies under Fixed and Floating Exchange Rates.” IMF Staff Papers 9: 369–79, https://doi.org/10.2307/3866091.Search in Google Scholar
Furceri, D., P. Loungani, and J. D. Ostry. 2019. “The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data.” Journal of Money, Credit, and Banking 51 (S1): 163–98, https://doi.org/10.1111/jmcb.12668.Search in Google Scholar
Gallagher, K. P. 2011. “The IMF, Capital Controls and Developing Countries.” Economic and Political Weekly XLVI (19): 12–6.Search in Google Scholar
Gallagher, K. P. 2014a. “Contesting the Governance of Capital Flows at the IMF.” Governance 28 (2): 185–98, https://doi.org/10.1111/gove.12100.Search in Google Scholar
Gallagher, K. P. 2014b. Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance. Ithaca, London: Cornell University Press.10.7591/cornell/9780801453113.001.0001Search in Google Scholar
Gallagher, K. P. 2015. Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance. Ithaca and London: Cornell University Press.10.7591/cornell/9780801453113.001.0001Search in Google Scholar
Gallagher, K. P., and J. A. Ocampo. 2013. “IMF’s New View on Capital Controls.” Economic and Political Weekly XLVIII (12): 10–3.Search in Google Scholar
Ghosh, A. R., J. D. Ostry, and M. S. Qureshi. 2017. Taming the Tide of Capital Flows: A Policy Guide. Cambridge: MIT Press.10.7551/mitpress/9780262037167.001.0001Search in Google Scholar
Gourinchas, P.-O., and O. Jeanne. 2006. “The Elusive Gains from International Financial Integration.” The Review of Economic Studies 73 (3): 715–41, https://doi.org/10.1111/j.1467-937x.2006.00393.x.Search in Google Scholar
Grabel, I. 2011. “Not Your Grandfather’s IMF: Global Crisis, ‘productive Incoherence’ and Developmental Policy Space.” Cambridge Journal of Economics 35 (5): 805–30, https://doi.org/10.1093/cje/ber012.Search in Google Scholar
Grabel, I. 2017. “Capital Controls in a Time of Crisis.” In Financial Liberalisation: Past, Present and Future, edited by P. Arestis, and Sawyer, M. Basingstoke: Palgrave MacMillan.10.1007/978-3-319-41219-1_5Search in Google Scholar
Helleiner, E. 2015. “Controlling Capital Flows “At Both Ends”: A Neglected (But Newly Relevant) Keynesian Innovation from Bretton Woods.” Challenge 58 (5): 413–27, https://doi.org/10.1080/05775132.2015.1087239.Search in Google Scholar
Independent Evaluation Office of the International Monetary Fund (IEO). 2019. IMF Advice on Unconventional Monetary Policies. Washington: International Monetary Fund.Search in Google Scholar
International Monetary Fund (IMF). 2012. The Liberalization and Management of Capital Flows – an Institutional View. November. Washington: International Monetary Fund.10.5089/9781498339612.007Search in Google Scholar
International Monetary Fund (IMF). 2013a. Guidance Note for the Liberalization and Management of Capital Flows. April. Washington: International Monetary Fund.10.5089/9781498341929.007Search in Google Scholar
International Monetary Fund (IMF). 2013b. Key Aspects of Macroprudential Policy. June. Washington: International Monetary Fund.10.5089/9781498341707.007Search in Google Scholar
International Monetary Fund (IMF). 2014. Staff Guidance Note for Macroprudential Policy. December. Washington: International Monetary Fund.10.5089/9781498342629.007Search in Google Scholar
International Monetary Fund (IMF). 2015. Managing Capital Outflows – Further Operational Considerations. December. Washington: International Monetary Fund.10.5089/9781498343930.007Search in Google Scholar
International Monetary Fund (IMF). 2017. Increasing Resilience to Large and Volatile Capital Flows – the Role of Macroprudential Policies. July. Washington: International Monetary Fund.10.5089/9781498346696.007Search in Google Scholar
International Monetary Fund (IMF). 2020. Toward an Integrated Policy Framework. October. Washington: International Monetary Fund.Search in Google Scholar
Jeanne, O., and A. Korinek. 2010. “Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach.” The American Economic Review 100 (2): 403–7.10.3386/w15927Search in Google Scholar
Kentikelenis, A. E., T. H. Stubbs, and L. P. King. 2016. “IMF Conditionality and Development Policy Space, 1985–2014.” Review of International Political Economy 23 (4): 543–82.10.1080/09692290.2016.1174953Search in Google Scholar
Klein, M. W., and J. C. Shambaugh. 2015. “Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy.” American Economic Journal: Macro-economics 7 (4): 33–66.10.3386/w19461Search in Google Scholar
Korinek, A. 2007. Dollar Borrowing in Emerging Markets. Dissertation. Columbia University.Search in Google Scholar
Korinek, A. 2011a. Excessive Dollar Borrowing in Emerging Markets. manuscript. University of Maryland.Search in Google Scholar
Korinek, A. 2011b. “The New Economics of Prudential Capital Controls.” IMF Economic Review 59 (3): 523–61.10.1057/imfer.2011.19Search in Google Scholar
Korinek, A. 2016. Currency Wars or Efficient Spillovers? NBER Working Paper No. 23004. https://www.nber.org/papers/w23004.Search in Google Scholar
Korinek, A. 2018. “Regulating Capital Flows to Emerging Markets: An Externality View.” Journal of International Economics 111: 61–80.10.3386/w24152Search in Google Scholar
Korinek, A. 2020. Managing Capital Flows: Theoretical Advances and IMF Policy Frameworks. IEO Background Paper BP/20-02/01. Independent Evaluation Office of the International Monetary Fund.Search in Google Scholar
Korinek, A., and J. Kreamer. 2014. “The Redistributive Effects of Financial Deregulation.” Journal of Monetary Economics 68: S55–S67.10.3386/w19572Search in Google Scholar
Korinek, A., and D. Sandri. 2016. “Capital Controls or Macroprudential Regulation?” Journal of International Economics 99 (S1): S27–S42.10.3386/w20805Search in Google Scholar
Korinek, A., and A. Simsek. 2016. “Liquidity Trap and Excessive Leverage.” The American Economic Review 106 (3): 699–738.10.3386/w19970Search in Google Scholar
Kose, M. A., and others. 2003. Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, IMF Occasional Paper 220. Washington: International Monetary Fund.10.5089/9781589062214.084Search in Google Scholar
Kose, M. A., and others. 2009. “Financial Globalization: A Reappraisal.” IMF Staff Papers 56 (1): 8–62. Washington: International Monetary Fund.10.3386/w12484Search in Google Scholar
Krugman, P. R. 1999. “Balance Sheets, the Transfer Problem, and Financial Crises.” In International Finance and Financial Crises: Essays in Honor of Robert P. Flood Jr, edited by P. Isard, A. Razin, and A. Rose. Boston and Washington, DC: Kluwer and International Monetary Fund.10.1007/978-94-011-4004-1_2Search in Google Scholar
Mendoza, E. G. 2005. “Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies.” Economia 6 (1): 103–48.10.3386/w11691Search in Google Scholar
Montiel, P. 2020. The IMF’s Advice on Capital Flows: How Well is it Supported by Empirical Evidence? IEO Background Paper No. BP/20-02/02 for IEO evaluation of “IMF Advice on Capital Flows”. Washington: International Monetary Fund.Search in Google Scholar
Mundell, R. A. 1963. “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates.” Canadian Journal of Economics and Political Science 29 (4): 475–85.10.2307/139336Search in Google Scholar
Obstfeld, M., and K. Rogoff. 1995. “Chapter 34: The Intertemporal Approach to the Current Account.” In Handbook of International Economics, edited by Grossman, G. and Rogoff, K, Vol. 3. Amsterdam: Elsevier.10.1016/S1573-4404(05)80014-0Search in Google Scholar
Ostry, J. D., and others. 2010. Capital Inflows: The Role of Controls. IMF Staff Position Note 10/04. Washington: International Monetary Fund.10.5089/9781462347513.004Search in Google Scholar
Ostry, J. D., and others. 2011a. Managing Capital Inflows – what Tools to Use? IMF Staff Discussion Note 11/6. Washington: International Monetary Fund.10.5089/9781463926540.006Search in Google Scholar
Ostry, J. D., and others. 2011b. “Capital Controls: When and Why?” IMF Economic Review 59 (3): 562–80.10.1057/imfer.2011.15Search in Google Scholar
Ostry, J. D., A. Berg, and C. G. Tsangarides. 2014. Redistribution, Inequality, and Growth. IMF Staff Discussion Note 14/02. https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf.10.5089/9781484352076.006Search in Google Scholar
Ostry, J. D., P. Loungani, and A. Berg. 2019. Confronting Inequality: How Societies Can Choose Inclusive Growth. New York, NY: Columbia University Press.10.7312/ostr17468Search in Google Scholar
Rebucci, A., and C. Ma. 2020. Capital Controls: A Survey of the New Literature. Oxford, UK: Oxford Research Encyclopedia of Economics and Finance.10.1093/acrefore/9780190625979.013.309Search in Google Scholar
Rey, H. 2013. Dilemma Not Trilemma: The Global Financial Cycle and Monetary Policy Independence. Kansas City, MO: Federal Reserve Bank of Kansas City Economic Policy Symposium.Search in Google Scholar
Rodrik, D. 1998. “Who Needs Capital-Account Convertibility?” Princeton Essays in International Finance 207: 1–10.Search in Google Scholar
Schmitt-Grohe, S., and M. Uribe. 2016. “Downward Nominal Wage Rigidity, Currency Pegs, and Involuntary Unemployment.” Journal of Political Economy 124 (5): 1466–514.10.1086/688175Search in Google Scholar
Stiglitz, J. E. 2000. “Capital Market Liberalization, Economic Growth, and Instability.” World Development 28 (6): 1075–86.10.1016/S0305-750X(00)00006-1Search in Google Scholar
Stiglitz, J. E. 2002. Globalization and its Discontents. New York: W.W. Norton and Company.Search in Google Scholar
Tinbergen, J. 1952. On the Theory of Economic Policy. Amsterdam: North Holland.Search in Google Scholar
Towe, C. 2020. IMF Policy Advice on Capital Flows: Multilateral Issues. IEO Background Paper No. BP/20-02/04 for IEO evaluation of “IMF Advice on Capital Flows”. Washington: International Monetary Fund.Search in Google Scholar
© 2022 Walter de Gruyter GmbH, Berlin/Boston