Capital Account Liberalization And The Selection Of Macro-prudential Policy Tools In Emerging Economies

The emerging market economies began to open capital account in the late 1980 s.Capital account liberalization is like a double-edged sword,which has introduced the risk of cross-border capital flows.Due to the financial market in emerging market economies is immature,and financial vulnerability exist as original sin,both of them make emerging market economies easier to suffer crisis.In order to prevent the spread of the systemic risks and maintain financial stability,it is necessary to apply macro-prudential policy tools to intervene in procyclicality of capital flow.Based on theoretical analysis,this paper take India and Chile for example to give analysis to their procedure of capital account liberalization and macro-prudential policy tools.We conclude that only the emerging economies select the mode and order of capital account liberalization prudently,the capital account could be opened successfully.It is easy to trigger capital inflow in a large scale after opening capital account.This inflow is procyclical.Emerging economies such as South Korea,India and Chile have developed a set of macro-prudential policy toolbox with themselves' national characteristics.Nevertheless,due to the limits of present data and evaluation methods,the analysis on the effectiveness of macro-prudential policy tools is immature yet.The paper analyzed the effectiveness of three country's macro-prudential policy tool from qualitative perspective:credit tools such as loan-to-value ratio(LTV),debt-to-income ratio(DTI)are mainly to adjust the real estate market prices and leverage;capital tools such as countercyclical capital requirement and provisioning requirement are mainly used to limit the credit in banks and improve the ability in resisting systemic risk of banks;with frequent reserve requirement,it plays role in adjusting the liquidity of financial market.Finally,China should not speed up the capital account liberalization currently.These measures should be taken to cope with the risk of cross-border capital flows:controlling the short-term foreign debt,promoting the liberalization of exchange rate and interest rate.In addition,China also should enrich the macro-prudential policy toolbox and strengthen macro-prudential global cooperation.