Have you ever tried drinking from a fire hose? That’s the kind of problem emerging markets face in adjusting to volatile capital flows.
Emerging markets must master a difficult balancing act: While they need adequate investment for development, sequential floods and droughts of cash can destabilize their economies when financial waves shift. Attempts to use capital controls to smooth the flow has rendered mixed results, as aspirations have collided with institutional weaknesses in many countries. Is there a better way? getAbstract recommends this scholarly report from Atish R. Ghosh, Mahvash S. Qureshi and Naotaka Sugawara, economists at the International Monetary Fund, for its comprehensive analysis of the efficacy of capital controls and its case for multilateral cooperation in the management of financial flows.
In this summary, you will learn
- Whether restrictions on cross-border capital flows are effective
- How national restrictions in both source and recipient countries can reduce volatile flows
- Why multilateral coordination could significantly reduce distortions and improve outcomes
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