Abstract
Abstract The recent trend towards liberalization of international capital movements in most parts of the world economy has been accompanied by growing agreement concerning the potential benefits of long-term international investment, so long as it is subject to certain restrictions and conditions. But there is no such consensus as to the benefits of short-term capital movements, even though these too are now increasingly covered by measures of liberalization. Policy makers’ concerns regarding short-term capital movements derive mainly from the volatility of many of the transactions through which such movements are effected. Unless offsetting action is taken, this is easily translated into volatility of the exchange rate, asset prices and interest rates, foreign exchange reserves, and the supply of domestic financing. Therefore such movements are capable of exerting a powerful influence on the economy as a whole, including resource allocation, consumption, and investment.
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