Fluctuations in International Capital Flows: Challenges and Policy Responses - Part 1
Monetary review, 3rd Quarter 2011
Rapid and significant reversal of private capital flows to a number of emerging
economies in the wake of the financial crisis has brought the countries'
management of capital flows into international focus. Capital inflows, via
improved funding options, pave the way for profitable investment, boosting
growth and employment, but may also contribute to overheating of the
economy and entail financial risks. Economic policy should be designed to ensure
that the improved prosperity will be of a stable and lasting nature. However, it is
difficult to reach international agreement on a framework for suitable economic
policy measures. This reflects e.g. that some countries fear such a framework
would limit their room for political manoeuvre, but also that, so far, there has
not been the same focus on the implications for international capital flows of an
accommodative monetary policy stance in advanced economies.