Capital flows and their implications for central bank policies in Mongolia

This paper examines the evidence on the recent developments in capital flows empirically, the determinants of capital flows, impact of capital flows on monetary and financial variables, and review of policy management of capital flows in Mongolia. The results show that the large capital inflows in the recent years have contributed in promoting economic growth and improving productivity and export performance, but the inflows are starting to create some adverse consequences, including rapid monetary expansion, accelerating inflation, appreciation of REER and a loss of competitiveness and faster growth in securities and housing prices. Therefore, the policy maker’s efforts should focus on reducing the risks and adverse consequences associated with the inflows, as opposed to affecting the flows and their composition