Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence
Author/Editor: Olivier J. Blanchard, Jonathan David Ostry, Atish R. Ghosh, Marcos Chamon
Release Date: © October, 2015
ISBN
: 978-1-51350-080-5
Stock #: WPIEA2015226
English
Stock Status: On back-order
Languages and formats available
English | French | Spanish | Arabic | Russian | Chinese | Portuguese | |
Paperback | Yes | ||||||
Yes | |||||||
ePub | Yes | ||||||
Mobipocket | Yes |
Description
The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging market policy makers however believe that inflows lead to credit booms and rising output, and the evidence appears to go their way. To reconcile theory and reality, we extend the set of assets included in the Mundell-Fleming model to include both bonds and non-bonds. At a given policy rate, inflows may decrease the rate on non-bonds, reducing the cost of financial intermediation, potentially offsetting the contractionary impact of appreciation. We explore the implications theoretically and empirically, and find support for the key predictions in the data.
More publications in this series: Working Papers
More publications by: Olivier J. Blanchard ; Jonathan David Ostry ; Atish R. Ghosh ; Marcos Chamon