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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Mon, 16 Feb 2009

Rakesh Mohan (BIS) report on Capital Flows and Emerging Economies

The Committee on the Global Financial System (CFGS) of the Bank for International Settlements established a Working Group under Dr. Rakesh Mohan of the Reserve Bank of India (RBI) to study capital flows and emerging economies. The Group submitted a very interesting and valuable report last month.

The group was originally set up primarily to study the implications of capital inflows for emerging economies, but the changed environment has made it a very valuable study of how the global crisis is impacting emerging economies and how these economies are responding to the crisis. The Working Group should be commended for interpreting their mandate broadly and covering the events of 2007 and 2008.

Even to people like me who have been following recent developments in several emerging countries keenly, there is a wealth of fascinating data and case studies in the report. Most of us find it easy to follow what is happening in the US and in our own country. The experiences of other countries – especially emerging economies – is not well documented in the publicly accessible literature. The blogosphere is not exactly littered with Bloomberg terminals and Datastream subscriptions, and even those with access to these find that quality reporting and analysis is not readily available for non US economies.

The conclusions of the report are also well balanced and sensible recognizing the beneficial effects of capital flows – particularly foreign direct investment and foreign portfolio equity investment. It also lays stress on the development of the domestic financial sector including pension funds. There is a clear recognition that the price-stability focus of monetary policy can be undermined by paying too much attention to exchange rate objectives.

The group was clearly racing against time to finish the report as events pushed them far beyond their original mandate. As a result, the proof reading of the report has probably been a little spotty as well. I spotted a couple of errors that would almost certainly have been eliminated by a more leisurely proof reading process:

But this is mere nitpicking about a report that I enjoyed reading. I strongly recommend that all those interested in how emerging markets are coping with these troubled times should read the whole report especially Chapter H on the developments in 2008.

Posted at 15:56 on Mon, 16 Feb 2009     View/Post Comments (2)     permanent link