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Taming the Tide of Capital FlowsA Policy Guide$
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Atish R. Ghosh, Jonathan D. Ostry, and Mahvash S. Qureshi

Print publication date: 2018

Print ISBN-13: 9780262037167

Published to MIT Press Scholarship Online: September 2018

DOI: 10.7551/mitpress/9780262037167.001.0001

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Toward the Policy Maker’s Vade Mecum

Toward the Policy Maker’s Vade Mecum

(p.381) 11 Toward the Policy Maker’s Vade Mecum
Taming the Tide of Capital Flows

Atish R. Ghosh

Jonathan D. Ostry

Mahvash S. Qureshi

The MIT Press

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

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