Managing capital accounts in emerging markets. Lessons from the global financial crisis
Gabor, D. (2012) Managing capital accounts in emerging markets. Lessons from the global financial crisis. The Journal of Development Studies, 48 (6). pp. 714-731. ISSN 0022-0388
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Publisher's URL: http://dx.doi.org/10.1080/00220388.2011.649257
This paper focuses on Eastern Europe’s experience before and during the 2007-2009 crisis to discuss emerging countries’ options to address global liquidity cycles. It argues that sequencing strategies envisaging capital controls as last-resort option can have perverse effects where banks play multiple roles: from intermediaries of capital inflows to directly accessing global interbank markets to fund foreign-currency lending. A strategy combining sterilizations at long-term maturities with the creation of narrow banks to support sovereign debt dynamics and caps on foreign-currency exposure would contain banks’ involvement in carry trades, curb innovations seeking to circumvent capital controls and restore policy autonomy.
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