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Capital Flows to Transition Economies: Master or Servant? (in English)

Author

Listed:
  • Leslie LIPSCHITZ

    (IMF Institute)

  • Timothy LANE

    (IMF, Western Hemisphere Department)

  • Alex MOURMOURAS

    (IMF Institute)

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.

Suggested Citation

  • Leslie LIPSCHITZ & Timothy LANE & Alex MOURMOURAS, 2006. "Capital Flows to Transition Economies: Master or Servant? (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(5-6), pages 202-222, May.
    • Handle: RePEc:fau:fauart:v:56:y:2006:i:5-6:p:202-222
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    References listed on IDEAS

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    Cited by:

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    2. Ales Bulir & Jaromir Hurnik, 2006. "The Maastricht Inflation Criterion: "Saints" and "Sinners"," Working Papers 2006/8, Czech National Bank.
    3. Hubert Gabrisch, 2015. "Net Capital Flows To And The Real Exchange Rate Of Western Balkan Countries," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(205), pages 31-52, April – J.
    4. Hubert Gabrisch & Karsten Staehr, 2014. "The Euro Plus Pact: Cost Competitiveness and External Capital Flows in the EU Countries. WWWforEurope Policy Paper No. 15," WIFO Studies, WIFO, number 47496, January.
    5. Mr. Gerard J Almekinders & Mr. Alex Mourmouras & Ms. Jianping Zhou & Satoshi Fukuda & Yong Sarah Zhou, 2015. "ASEAN Financial Integration," IMF Working Papers 2015/034, International Monetary Fund.
    6. Gabrisch, Hubert & Staehr, Karsten, 2014. "The euro plus pact: cost competitiveness and external capital flows in the EU countries," Working Paper Series 1650, European Central Bank.
    7. Liudmila Malyshava, 2018. "External Instability in Transition: Applying Minsky's Theory of Financial Fragility to International Markets," Economics Working Paper Archive wp_909, Levy Economics Institute.

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    More about this item

    Keywords

    Central and Eastern Europe; capital flows; convergence; macroeconomic policy;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F3 - International Economics - - International Finance

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