International Capital Flows And Macroeconomic Stability

Research BackgroundSince the 1990's the capital flows have developed at unprecedented speed in scale. The international capital flow has stepped into a globalization stage. The capital flows provide fund for developing countries'economic development. But also they bring risks and problems as follows: resulting in the economic bubble in the receiving countries, weakening the effectiveness of monetary policies, and leading to a weaker financial system. With the investment environment improving, Southeast Asian countries attracted a large amount of international capital from the late 1980's to the mid-1990's. The capital inflows promoted the economic growth in these countries which lack the capital resources. At the same time emerged some bad results: 1.these countries saw growth in domestic demand and thus overheating economy. 2. As the financial institutions and financial regulations were not very sound, the whole financial system became vulnerable to the large capital inflows. In order to protect from the negative impact of capital inflows on domestic economy and financial system, the government should adopt effective measures. This paper chooses the Southeast Asian countries before the financial crisis as research objective. It will tell us the effect of capital flows on the economic stability, the macroeconomic policies to stabilize the economy and give a comment on the policies after analyzing the experience of Southeast Asian countries.In the end the paper will make some conclusion.Main content and StructureThis thesis includes four chapters.Chapter one gives us an introduction about the concept of capital flows and their basic characteristic. And it also introduces theory about capital flows and macroeconomic policies in economic stability.