Capital Flow Management Research Articles

Risk evaluation of livestream e-commerce platforms based on expert trust networks and CODAS

As an emerging e-commerce model, livestream e-commerce (LEC) has presented novel opportunities for the advancement of the retail industry. While retailers reap the benefits by this platform, they also encounter challenges associated with platform risks. This paper aims to propose a novel hybrid model to address the risks inherent in livestream e-commerce platforms (LECPs) evaluation problems. Firstly, the paper makes use of q-Rung orthopair fuzzy (q-ROF) trust network (TN) to handle the intricate and uncertain evaluation environment of LECPs and utilizes combinative distance-based assessment (CODAS) to rank the alternative platforms. Secondly, considering that experts have different levels of familiarity with different indicator, a q-ROF-TN matrix between experts is established for each indicator to ascertain their respective weights, which adds robustness to the evaluation process. Thirdly, the dual feedback mechanism is designed to enhance group consensus that attempts to ensure that the evaluation process is collaborative and considers diverse expert opinions, leading to more reliable outcomes. Finally, a set of evaluation indicators is constructed covering various aspects like capital flow management capability and public domain traffic support, and the level of risk of the four LECPs is evaluated using the proposed method. Furthermore, the reliability and effectiveness of the proposed evaluation model are validated through sensitivity analysis and comparative study.

Capital flows-at-risk: Push, pull and the role of policy

We characterise the probability distributions of various types of gross capital flows conditional on information contained in financial asset prices in a panel of emerging market economies, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push- and pull-type factors. We find that both push and pull factors have heterogeneous effects across the distributions of gross capital flows, which are most marked in the left tails. We then explore the role of the pre-existing stance of macroprudential and capital flow management policy in shaping probability distributions of capital flows. Macroprudential and capital flow management measures can both be stabilising, leading to less volatile flows and in particular to lower chances of large portfolio outflows. A tighter macroprudential stance can also reduce the sensitivity of portfolio flows to global financial shocks.

Capital Flow Management Within Macroeconomics Stability Framework in Indonesia (2008 – 2022)

Indonesia is an EMDEs (Emerging Market and Developing Economies) country, and adopting an open economy causes foreign capital flow, especially FDI (Foreign Direct Investment) and PI (Portfolio Investment) can be free flows, and its movements are unpredictable. The movement of capital flows will affect the money supply transmitted to monetary and macroeconomic variables. This study aims to determine the response and contribution of macroeconomic variables to FDI and PI, as well as examining the causality between macroeconomic variables, FDI and PI. This research used the Vector Error Correction Model Granger Causality. The results show that exchange rate and inflation shocks significantly impact FDI and PI. While the results of Granger causality, changes in macroeconomic variables cause changes in FDI and PI. This research recommends that stakeholders continue implementing policy mix and monetary policy to improve exchange rates and inflation stability. In addition, the management of capital flows is still considered because the potential risks posed to the economy are quite large

MACROPRUDENTIAL POLICIES CAPITAL FLOW MANAGEMENT

This article aims to present the legitimization process of macroprudential capital flow management policies as a tool for economic stability after 2009, when such policies started to have the support of multilateral institutions such as the IMF. To this end, we conducted extensive bibliographical research, bringing together several academic strands to present how this process of transformation and acceptance developed and the motivations, impacts, and effective results of these policies. As a result, we verified that the use and effectiveness of these management strategies must follow an arrangement in which their scope must involve several other policies of the fiscal, macroprudential, monetary, exchange rate, and capital control, mainly in emerging economies and in these cases, reduce financial fragility and maintain the macroeconomic stability of these countries in the face of adverse shocks to the balance of payments caused by excessive capital inflows or outflows, mitigating the resulting externalities in the process.Keywords: Macroprudential policies / Stability / Capital flow

Similarities yet Divergence in South Asian Macroeconomic Performance


 Stylized business cycle facts for South Asia are both similar and different from other regions. They show the dominance of supply shocks, often amplified by macroeconomic policies and procyclical current accounts. Interest and exchange rate volatility rose initially on liberalization, but fell as markets deepened. A gradual approach to openness and market development, with flexible exchange rates, that avoided complete liberalization, worked well initially. But a combination of excessive government/foreign borrowing and inadequate reserves made it difficult for smaller countries to withstand the multiple external shocks that began with the global pandemic. Domestic ability to smooth shocks and global safety nets are both essential. India benefitted from growing diversity, evolution to countercyclical macroeconomic policy better suited to structure and a good coordination of monetary and fiscal policies, with balance between demand stimulus and continuing supply-side reforms. Reserves and capital flow management policies helped insulate from global shocks. Intervention damped excess exchange rate volatility, reducing risk premiums.

The Effects of Capital Controls on Housing Prices

AbstractPolicymakers increasingly use capital control policies (i.e., capital flow management) to manage capital flows. However, whether the implementation of such policies can effectively affect housing prices and to what extent is less discussed. In this paper, I study the effects of four types of granular capital control policies on housing prices using a large cross-country panel of 53 economies from 1995 to 2017. I find that the estimated effects of capital controls are distinct for different capital flow types and flow directions, but all capital control inflow indices appear to reduce housing prices in the long-run. Additionally, I find that capital controls have asymmetric effects on housing prices for advanced economies and emerging markets. The negative effects of capital controls on housing prices are mainly driven by pre-crisis subsample, which means capital controls have been in effect several times before the Global Financial Crisis. I also estimate the effects for boom and slump periods respectively and find that capital control policies are implemented in an acyclical way. Since there exists endogeneity for capital control on real estate transactions, I further use IPWRA method to rebalance capital control actions and find that IPWRA estimators can weaken the negative effects on housing prices, and the attenuation effects can be attributed to endogenous factors.

The effectiveness of macroprudential policies in managing extreme capital flow episodes

AbstractAgainst the backdrop of a proliferation of policy tools in recent years, there is ongoing policy uncertainty surrounding the suitability of capital flow management in mitigating systemic risk and financial disruptions. We study the effectiveness of macroprudential policies in managing extreme capital flow episodes (surges, stops, flight, and retrenchment), comparing them to capital controls and foreign exchange interventions. Using propensity score matching, based on a panel of 54 countries spanning 1990Q1 to 2020Q3, we find that macroprudential policy can reduce the likelihood of extreme capital flow episodes at least as effectively as capital controls or foreign exchange interventions. Their relative effectiveness, however, varies considerably across type of instrument, proliferation of tools, country income‐development level, and type of extreme capital flow episode.

Does “Lean Against the Wind” monetary policy improve welfare in a commodity exporter?

Emerging Market Economies struggle to balance monetary policy with capital flow management and commodity price volatility. Our study employs a New-Keynesian model, using Russian data from 2001 to 2019, to examine ‘Lean Against the Wind’ (LAW) monetary policies. We show that under Lean Against the Wind (LAW) policies, households with borrowed funds experience improved welfare, while households that save are adversely affected. While LAW increases output and inflation volatility, it also presents mixed financial stability outcomes—lowering debt volatility but heightening that for household delinquencies. These findings highlight the complex effects of LAW in economies subject to varied shocks.

MANAGEMENT OF CAPITAL FLOWS

The purpose of the research is to study the factors influencing this system, to analyze the theory and actual data related to the application of control measures on cross-border capital flows, to systematize the possible results of this tool, to create a balance and to properly manage capital flows, along with the balance of payments, which is a statistical system reflecting economic transactions, as well as determining its positive and negative consequences. The methodology of the research – in order to investigate the multi-directional effects of capital flows in the research, the methods of analysis, analysis, synthesis and secondary data analysis were used. The practical importance of the research - the results of this research can be used for scientists, politicians, analysts, financial institutions, interested parties in the economy sector to conduct macroeconomic analysis, formulate related policies and create a model related to capital flow management. The results of the research – this research significantly emphasizes the importance of macroeconomic analysis to monitor the economic health of a country, develop sound policies and practices and sustain appropriate growth, strategies to mitigate the potential downsides of capital flow volatility. The originality and scientific novelty of the research – the research highlights the importance of cross-border capital movement in enhancing access to finance, promoting innovation, the benefits of capital flows to the country, and the challenges it can create, contributing to the overall well-being of the economy.

The impact of macroprudential cross-border capital flow management on the linkage of domestic and foreign bond markets

While cross-border financing activities have increased significantly in recent years, the inflow of capital also leads to accumulated financial risks. To mitigate financial risks and promote the opening of financial markets, macroprudential management policies for cross-border financing have been implemented since 2016. This paper examines the effectiveness of macroprudential management policies in opening financial markets and managing foreign financial risks. We employ a time-varying parameter vector autoregressive model (TVP-VAR) to quantitatively analyze changes in the spillover effects between China’s bond market and foreign bond markets under different implementation stages of cross-border financing macroprudential policy. Our analysis reveals that the implementation of macroprudential management of cross-border financing has increased the total spillover effect between different bond markets, as well as the spillover effect from other bond indices to the Chinese RMB Bond Index and the spillover effect from other indices to the Chinese USD index. Moreover, our findings indicate that macroprudential management has reduced the total volatility spillover effect and the volatility spillover effect from other indices to the Chinese RMB Bond Index. These results highlight the importance of preventing external risk transmission when China’s financial market is opening to the world.

The external financial spillovers of CBDCs

We set up a DSGE model to study the macroeconomic consequences of a foreign central bank digital currency (CBDC) available to residents in a small open economy. We find that a gradual and permanent increase in the domestic households' preferences toward the foreign CBDC leads to a structural reduction in economic activity, especially if the CBDC is designed to be similar to domestic deposits. Imposing capital flow management measures on outflows, relaxing macroprudential policy, or selling foreign reserves can smooth the transition. A Taylor rule that targets PPI inflation is more effective in limiting the disruptive effects than a CPI targeting or an exchange rate peg. A central bank's liquidity facility available to commercial banks is able to avoid the long-run GDP loss, at the cost of a larger short-run consumption fall. We also show that an economy with a large stock of foreign CBDC is better shielded from exogenous increases in the interest rate on foreign debt, if the CBDC remuneration remains constant.

Guidance Note on The Liberalization and Management of Capital Flows

Guidance Note on The Liberalization and Management of Capital Flows

INTERACTION OF MACRO-MANAGEMENT POLICIES TO REDUCE LENDING GROWTH

This paper examines whether capital flow management (CFM) and monetary policies effectively reduce lending growth in emerging market economies (EMEs) in the presence of conventional and unconventional monetary policy actions undertaken by advanced economies. We apply a dynamic panel model with fixed effects to a sample of 24 emerging market economies for 2000–2021 using quarterly data and more continuous variables than in other studies rather than limiting the variability using proxies. Capital controls and macroprudential regulation, as CFM policy tools, moderate lending growth. This effect is particularly shown in countries with tighter monetary conditions. Our main findings highlight the useful role of coordinating CFM and monetary policies. This role stands for both fixed and flexible exchange rate regimes. Lastly, we find capital flow management and monetary policies manage to control lending in normal periods, but their coordination is less effective during crises and high volatility periods.

Capital flow management as a tool for ensuring financial stability

The article relevance is determined by the existing discussions among economists and practitioners about the advantages, disadvantages and consequences of the use of control over the cross-border movement of capital. The subject of the article is the study of the permissibility of the systematic use of capital control measures (“Capital Control”, control over cross-border capital movement, including restrictions on cross-border transactions; a complete or partial ban on currency exchange operations; introduction of restrictions on foreign investments in national assets or on national investments in foreign assets, etc.) to maintain the stability of the national financial system. The purpose of the article is to analyze opinions and factual data on the application of measures to control the cross-border movement of capital, systematization of the possible consequences of this tool for Russia. Based on the analysis of empirical data, country analysis and documents of the International Monetary Fund, the authors have compiled a classification of capital control measures, identified their main groups, identified the reasons for their use, and systematized the advantages and disadvantages of using such measures. The authors conclude that depending on the motives of the regulator, there may be different approaches to the application of capital control measures. The use of the results of this study may be useful for regulators of the Russian financial market, since capital control measures are in force in Russia.

A STUDY ON THE ROLE OF FINANCIAL MANAGEMENT IN PREVENTING BUSINESS RISKS (THE CASE OF CENTURY TIANHONG EDUCATION TECHNOLOGY CO., LTD.)

Financial management, being an important part of modern enterprise management, is a key force that affects the sustainable development of enterprises. With such significantchanges in the market, enterprises need to constantly improve their core competitiveness, establish and improve a scientific and effective enterprise financial management system and risk mechanism, and strengthen the management and control of enterprise production and operation risks. Therefore, this study collates and calculates the annual report of Century Tianhong Education Technology Co., Ltd. for the three years from 2019 to 2022, outlines the current situation of financial risk management of Century Tianhong Education Technology Co., Ltd. in terms of solvency, profitability and development ability, and uses the financial risk management method to identify and evaluate the financial risk of Century Tianhong Education Technology Co., Ltd. Through the quantitative research on the hypothesis, the research results are as follows: Century Tianhong Education Technology Co., Ltd. has management problems in terms of solvency, profitability and development ability, and the improvement of these three aspects has a significant impact on the role of financial management to prevent business risks. This studyputs forward the following suggestions: 1) strengthen the concept of capital flow management and risk prevention; 2) accelerate the modernization of the accounts receivable system; 3) clarify the cost components of different products; 4) establish the prevention of harmonious financial management level of enterprises. It is expected to scientifically evaluate and predict the future earnings of Century Tianhong Education Technology Co., Ltd., and effectively improve the overall financial management level of the company.

아시아 4개국의 국제자본 통제정책을 고려한 새 외환시장 압력지수에 관한 연구

Purpose - An exchange market pressure index (EMP) exhibits not only exchange-rate fluctuations but also the changes of government tools to manage exchange rates. Therefore, it is useful to estimate hidden pressures that exist in foreign exchange markets. This study suggests a new EMP that might have more information on foreign exchange markets than other indices.
 Design/Methodology/Approach - We include a capital-flow management (CFM) measure as another component in our new EMP to consider the role of CFMs for managing exchange rates. This new index is then applied to the four Asian countries of South Korea, Malaysia, Philippines, and Japan to analyze their foreign exchange markets.
 Findings - We found that the new EMP sends stronger signals before and during the currency crises than existing indices. Moreover, the volatility of emerging market EMP is stronger than that of advanced countries because the former group changes CFM policies more frequently than the latter . These findings suggest that the new EMP might describe exchange rates and pressures in foreign exchange markets better than other indices.
 Research Implications - To our best knowledge, this study is one of few attempts to incorporate CFM measures into an EMP to consider the effectiveness of CFMs in managing exchange rates.

Capital flow management and monetary policy to control credit growth

AbstractThis paper examines whether capital flow management and monetary policies effectively reduce credit growth in emerging market economies in the presence of both conventional and unconventional monetary policy actions undertaken by advanced economies. We apply a dynamic panel model with fixed effects to a sample of 21 emerging market economies from 2000 to 2020 using quarterly data and more continuous variables than in other studies rather than limiting the variability using proxies. We find that capital controls and macroprudential regulation, as tools of capital flow management policy, moderate credit growth. This effect is particularly shown in countries with tighter monetary conditions. Our main findings highlight the useful role of coordinating capital flow management and monetary policies. This role stands for both fixed and flexible exchange rate regimes. Lastly, we find capital flow management and monetary policies manage to control credit in normal periods, but their coordination is less effective during crises and high volatility periods. Robustness checks suggest that these findings are stable across alternative proxies used in the literature, thus providing additional support for the validity of our results.

The Incidence of Capital Flow Management Measures: Observations from a New Database

The Incidence of Capital Flow Management Measures: Observations from a New Database

The International Monetary Fund and capital flows

AbstractControls on international capital flows were a central issue for the International Monetary Fund at Bretton Woods in 1944. But by the 1970s, mainstream thinking was encouraging open capital flows. A succession of damaging crises followed: Latin America in the 1980s, Mexico again in 1994, and Asia in 1997. Fund policies were tweaked, but the causes were seen as being largely in the recipient countries. Capital controls were specifically rejected.Nevertheless, the Fund’s view began to shift, probably encouraged by the 2008 global financial crisis. There was a growing recognition that the capital-flow surges at the heart of these crises were often externally driven, reflecting global factors. The appropriate response would include capital flow management (CFM). The Fund recognized this in its 2012 Institutional View, but CFM was at the bottom of the policy toolbox, surrounded by conditions and constraints, maintaining the stigma on CFM.Meanwhile many emerging economies were enhancing their ability to cope with excessive capital flows, although at some cost (slower growth, tighter fiscal policy, large foreign-exchange reserves). At the same time the flows were increasing, with a bigger component of flighty portfolio flows. CFM measures still have an important place in this new environment, but the Fund’s reluctance to embrace them means that a deep discussion on operationalizing effective CFMs is still lacking.

The impossibility of the impossible trinity? The case of Indonesia

AbstractThe impossible trinity suggests that an economy cannot simultaneously achieve a fixed exchange rate, high capital mobility, and independent monetary policy without abandoning one of these. However, This paper looks at Indonesia’s experiences from the 2009 QE and the 2013 taper tantrum, considering why Indonesian policy-makers were unable to use policies as per the trilemma, and the policy implications of this. There are three possible reasons why Indonesia found it difficult to implement this trilemma policy choice: differing monetary policy objectives, volatile floating exchange rates, and balance sheet effects. The commodity supercycle also plays an exogenous role, unable to be overcome by monetary or exchange rate policy while at the same time impacting fiscal policy, income redistribution, trade balance, and the exchange rate. Overall, this paper argues that monetary policy on its own is likely to be insufficient to manage the economy adequately. Other levers and factors, such as macroprudential policy, fiscal policy, capital flow management, and institutional quality, are critical to make the policy choices more effective.