NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Mahvash S. Qureshi, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon

NBER Working Paper No. 17363
Issued in August 2011
NBER Program(s):   IFM

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.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w17363

Published: Managing Capital Inflows: The Role of Capital Controls and Prudential Policies , Mahvash S. Qureshi, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon. in Global Financial Crisis, Engel, Forbes, and Frankel. 2012

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