Research and Analytics
Research and Analytics
The COVID-19 health and economic crisis has once again focused attention on the fickleness of capital flows and the need to have an adequate policy toolkit to manage the risks that stem from these flows, while maximizing their benefits.
International capital flows provide significant benefits for economic development but can also generate or amplify shocks. This dilemma has long posed challenges for policymakers in many open economies.
While flexible exchange rates can act as a useful shock absorber in the face of capital flow volatility, this mechanism does not always offer sufficient insulation, in particular when access to global capital markets is interrupted or market depth is limited.
