Capital flows and their effect on the monetary base

Reisen, Helmut

2014-01-02T18:40:59Z

LC/G.1792-P

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The large capital inflows into some Latin American countries since 1990 are a mixed blessing, for they widen the trade-off between disinflation at home and competitiveness abroad. A large part of the flows seems to be temporary rather than permanent. Permanent flows should be accommodated by an upward float of the currency, temporary flows by sterilized intervention on the foreign exchange market. Recent evidence suggests that sterilized intervention is more effective and carries lower fiscal costs than is often maintained. Asian policy practice suggests ways of sterilized intervention even with underdeveloped securities markets.

Includes bibliography

MONETARY RESERVES; FOREIGN EXCHANGE; INFLATION; COMPETITION; CAPITAL MOVEMENTS; RESERVAS MONETARIAS; MOVIMIENTOS DE CAPITAL; INFLACION; COMPETENCIA; DIVISAS;