Capital Flows and Capital Account Management in Selected Asian Economies

Gross capital inflows and outflows to and from emerging market economies (EMEs) have witnessed a significant increase since early 2000s. This rapid increase in the volume of flows accompanied by sharp swings in volatility has amplified the complexity of macroeconomic management in EMEs. While capital inflows provide additional financing for productive investment and offer avenues for risk diversification, unbridled flows could also exacerbate financial instability. In this paper we focus on the evolution of capital flows in a few select emerging Asian economies, and analyze surge and stop episodes as well as changes in the composition of flows across these episodes. We also provide a comprehensive description of the capital account management policies adopted by the host countries and evaluate the efficacy of these measures by analyzing whether they achieved the desired goals.This kind of an analysis is highly relevant especially a time when EMEs around the world are about to face the repercussions of a potential Quantitative Easing (QE) tapering by the US or launch of fresh QE measures by the Euro-zone, either of which could once again heighten the volatility of cross-border capital flows thereby posing renewed macroeconomic challenges for major EMEs