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Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States

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  • Ms. Zsofia Arvai

Abstract

This paper discusses the experience of the EU's eight new member countries (EU8) between 1995 and 2003 when the bulk of capital account liberalization took place, focusing on interest-rate-sensitive portfolio flows and financial flows. It takes stock of the lessons from capital flow patterns to draw policy conclusions. There were two distinct groups in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers. The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows. Monetary and exchange rate policies were the main instruments used to react to large interest-sensitive inflows, whereas fiscal tightening was seldom used as a direct reaction to inflows.

Suggested Citation

  • Ms. Zsofia Arvai, 2005. "Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States," IMF Working Papers 2005/213, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/213
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    References listed on IDEAS

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    Cited by:

    1. Jürgen von Hagen & Iulia Siedschlag, 2010. "Managing Capital Flows: Experiences from Central and Eastern Europe," Chapters, in: Masahiro Kawai & Mario B. Lamberte (ed.), Managing Capital Flows, chapter 7, Edward Elgar Publishing.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "Capital flows to central and Eastern Europe," Emerging Markets Review, Elsevier, vol. 8(2), pages 106-123, May.
    3. Raguideau-Hannotin, Léonore, 2023. "The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach," International Economics, Elsevier, vol. 174(C), pages 91-111.
    4. Scott W Hegerty, 2009. "Capital flows to transition economies: what is the role of external shocks?," Economics Bulletin, AccessEcon, vol. 29(2), pages 1345-1358.
    5. Wenwen Sheng & M. C. Sunny Wong, 2017. "Capital Flow Management Policies and Riskiness of External Liability Structures: the Role of Local Financial Markets," Open Economies Review, Springer, vol. 28(3), pages 461-498, July.
    6. Jonathan D. Ostry & Andrew Berg & Siddharth Kothari, 2021. "Growth‐equity trade‐offs in structural reforms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(2), pages 209-237, May.
    7. Mr. Juan Sole & Mr. Gabriel Sensenbrenner & Mr. Amor Tahari & J. E. J. De Vrijer & Ms. Marina Moretti & Ms. Patricia D Brenner & Mr. Abdelhak S Senhadji, 2007. "Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries," IMF Working Papers 2007/125, International Monetary Fund.
    8. Pirovano, Mara, 2012. "Monetary policy and stock prices in small open economies: Empirical evidence for the new EU member states," Economic Systems, Elsevier, vol. 36(3), pages 372-390.
    9. Malgorzata Sulimierska, 2008. "Capital Account Liberalization and Currency Crisis - The Case of Central Eastern European Countries," International Trade and Finance Association Conference Papers 1140, International Trade and Finance Association.
    10. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
    11. Gehringer, Agnieszka, 2013. "Growth, productivity and capital accumulation: The effects of financial liberalization in the case of European integration," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 291-309.
    12. Gianluca Salsecci & Antonio Pesce, 2008. "Long-term Growth Perspectives and Economic Convergence of CEE and SEE Countries," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 15(2), pages 225-239, September.
    13. David Vávra & Ms. Inci Ötker & Barry Topf & Zbigniew Polanski, 2007. "Coping with Capital Inflows: Experiences of Selected European Countries," IMF Working Papers 2007/190, International Monetary Fund.

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