Capital Flows and Exchange Rate Volatility

Basant K. Kapur

in Capital Controls and Capital Flows in Emerging Economies

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226184975
Published online February 2013 | e-ISBN: 9780226184999 | DOI:
Capital Flows and Exchange Rate Volatility

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This chapter describes the behavior of capital flows in Singapore, as well as Singapore's experience with capital account regulations. In addition to the noninternationalization policy and the discouragement of speculative short selling of shares, the exchange rate policy played a significant role in defusing the speculative attack. The Asian crisis of 1997–98 provided a major impetus to a shift in policy thinking regarding bond market development in Singapore. The crisis highlighted the dangers of currency and maturity mismatches in corporate borrowing. Singapore clearly has strong defenses against what it deems excessive exchange rate volatility triggered by destabilizing capital flows. These include its strong fundamentals, the adoption of a currency board (CB) system, and the nonadherence to a fixed currency peg when the economic situation changes.

Keywords: capital flows; Singapore; capital account regulations; noninternationalization policy; exchange rate policy; currency; corporate borrowing

Chapter.  13913 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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