Chapter

Toward the Policy Maker’s Vade Mecum

Atish R. Ghosh, Jonathan D. Ostry and Mahvash S. Qureshi

in Taming the Tide of Capital Flows

Published by The MIT Press

Published in print January 2018 | ISBN: 9780262037167
Published online September 2018 | e-ISBN: 9780262343756 | DOI: https://dx.doi.org/10.7551/mitpress/9780262037167.003.0011
Toward the Policy Maker’s Vade Mecum

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This chapter provides concrete policy advice for dealing with capital inflows. In sum, once the monetary authorities have allowed the exchange rate to appreciate to a level that is not undervalued from a multilaterally consistent medium-term perspective, they may want to start intervening in the foreign exchange (FX) market to prevent further appreciation, sterilizing the intervention if there are inflationary pressures. If the economy shows signs of overheating, monetary and fiscal tightening might be necessary, together with macroprudential measures to contain excessive credit growth. To the extent these policies prove insufficient, the authorities need to consider bolstering them by imposing or tightening capital controls. At the same time, national authorities must be mindful of growing balance-sheet mismatches in the economy and should avail themselves of both prudential measures and capital controls to shift the composition of inflows toward less risky forms of liabilities.

Keywords: capital inflows; foreign exchange intervention; sterilized intervention; macroprudential measures; capital controls; national authorities

Chapter.  11693 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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