The Tosovsky Dilemma: Capital Surges in Transition Countries
Finance & Development, Vol. 39, No. 3
Posted: 18 Jun 2009 Last revised: 23 Aug 2009
Date Written: June 17, 2009
Abstract
Transition countries that open themselves up to global capital markets are like honest citizens in a dangerous world - they are vulnerable to large and potentially erratic flows. Such flows should not be seen as one-off destabilizing events: they are intrinsic to the transition process and therefore need to be factored into policy formulation. This paper deals in a nontechnical way with some of the difficulties - fundamental incentives for massive carry trade and the vulnerability to shifting risk premia - that dog the formulation and implementation of macroeconomic stabilization policies in rapidly-developing emerging market economies.
Keywords: Transition countries, global capital markets
JEL Classification: P20, F21
Suggested Citation: Suggested Citation