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The Great RecessionLessons for Central Bankers$
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Jacob Braude, Zvi Eckstein, Stanley Fischer, and Karnit Flug

Print publication date: 2013

Print ISBN-13: 9780262018340

Published to MIT Press Scholarship Online: January 2015

DOI: 10.7551/mitpress/9780262018340.001.0001

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Managing Capital Inflows: Old and New Debates

Managing Capital Inflows: Old and New Debates

Chapter:
(p.165) 6 Managing Capital Inflows: Old and New Debates
Source:
The Great Recession
Author(s):

Jonathan D. Ostry

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262018340.003.0007

This chapter reviews some arguments on the appropriate management of capital inflow surges and examines, in particular, the conditions under which capital controls may be justified. A key conclusion is that if the economy is operating near potential, if the level of reserves is adequate, and if the exchange rate is not undervalued, then use of capital controls—in addition to both prudential and macroeconomic policy—is justified as part of the policy toolkit to manage the macroeconomic risks that inflow surges may bring. Such controls can moreover retain potency even if investors devise strategies to bypass them, provided such strategies are more costly than the expected return from the transaction.

Keywords:   Managing capital inflows, Capital controls, Exchange rate

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