Capital Flows to Transition Economies: Master or Servant?

27 Pages Posted: 30 Jan 2006

See all articles by Leslie Lipschitz

Leslie Lipschitz

IMF Institute

Timothy Lane

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

Alexandros Mourmouras

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

Date Written: October 2, 2002

Abstract

This paper discusses the forces driving capital flows in the transition countries of Central and Eastern Europe (CEE). It argues that various influences - specifically, the real exchange rate history and trend and the factor intensity of production - can combine to motivate very large capital inflows. These inflows can either undermine attempts at monetary restraint or force excessive appreciations. They can also render the economy highly vulnerable to shifts in market sentiment. The policy implications of the analysis are awkward: exposure to global capital markets sets up difficult dilemmas for policy and leads to vulnerabilities that can be reduced but not eliminated.

Keywords: Central and Eastern Europe, capital flows, convergence, macroeconomic policy

JEL Classification: E4, F3

Suggested Citation

Lipschitz, Leslie and Lane, Timothy and Mourmouras, Alexandros, Capital Flows to Transition Economies: Master or Servant? (October 2, 2002). IMF Working Paper No. 02/11, Available at SSRN: https://ssrn.com/abstract=879333

Leslie Lipschitz (Contact Author)

IMF Institute ( email )

700 19th St. NW
Washington, DC 20431
United States
202-623-8866 (Phone)

Timothy Lane

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

700 19th St. NW
Washington, DC 20431
United States
202-623-7648 (Phone)
202-623-4405 (Fax)

Alexandros Mourmouras

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

700 19th St. NW
Room 5-311
Washington, DC 20431
United States
202-623-5402 (Phone)
202-589-5402 (Fax)

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