Capital inflows and reserve accumulation: recent evidence

Over the past ten years, policymakers in various emerging economies have chosen to limit fluctuations in the value of their currencies relative to the U.S. dollar. This paper uses an interest rate parity relationship to identify potential sources of upward pressure on the exchange rate and to explain policy options aimed at containing such pressures. It documents the extent to which the accumulation of international reserves has been sterilized and provides a detailed list of the main policy initiatives aimed at curbing the forces that would otherwise cause the exchange rate to appreciate in more than 100 countries. The assessment of these policy efforts reveals a wide variety of tools used to contain the influx of capital flows. (Audio: Department of Economic Publications)