Managing Capital Inflows: The Role of Capital Controls and Prudential Policies

31 Pages Posted: 30 Aug 2011 Last revised: 12 Jun 2021

See all articles by Mahvash Saeed Qureshi

Mahvash Saeed Qureshi

International Monetary Fund (IMF) - Research Department

Jonathan D. Ostry

International Monetary Fund (IMF)

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Date Written: August 2011

Abstract

We examine whether macroprudential policies and capital controls can contribute to enhancing financial stability in the face of large capital inflows. We construct new indices of foreign currency (FX)-related prudential measures, domestic prudential measures, and financial-sector capital controls for 51 emerging market economies over the period 1995-2008. Our results indicate that both capital controls and FX-related prudential measures are associated with a lower proportion of FX lending in total domestic bank credit and a lower proportion of portfolio debt in total external liabilities. Other prudential policies appear to help restrain the intensity of aggregate credit booms. Experience from the global financial crisis suggests that prudential and capital control policies in place during the boom seem to have enhanced economic resilience during the bust.

Suggested Citation

Qureshi, Mahvash Saeed and Ostry, Jonathan D. and Ghosh, Atish R. and Chamon, Marcos, Managing Capital Inflows: The Role of Capital Controls and Prudential Policies (August 2011). NBER Working Paper No. w17363, Available at SSRN: https://ssrn.com/abstract=1919437

Mahvash Saeed Qureshi (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Jonathan D. Ostry

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Marcos Chamon

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5867 (Phone)

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