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Volume 56, Issue 5 -6

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Capital Flows to Transition Economies: Master or Servant? (in English)

Lane, Timothy; Lipschitz, Leslie; Mourmouras, Alex

Year: 2006   Volume: 56   Issue: 5 -6   Pages: 202-222

Abstract: This paper discusses the forces driving capital flows in the transition countries of Central and Eastern Europe (CEE). It argues that various influences ? specifically, the real exchange rate history and trend and the factor intensity of production ? can combine to motivate very large capital inflows. These inflows can either undermine attempts at monetary restraint or force excessive appreciations. They can also render the economy highly vulnerable to shifts in market sentiment. The policy implications of the analysis are awkward: exposure to global capital markets sets up difficult dilemmas for policy and leads to vulnerabilities that can be reduced but not eliminated.

JEL classification: E4, F3

Keywords: Central and Eastern Europe; capital flows; convergence; macroeconomic policy

RePEc: http://ideas.repec.org/a/fau/fauart/v56y2006i5-6p202-222.html

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