Macroprudential Policy in a World of High Capital Mobility: Policy Implications from an Academic Perspective
The paper explicates the issues raised for macroprudential regulation in a global economy with high capital mobility. The study surveys the recent literature and aims to translate the academic rationale for such policies, in which market imperfections lead to external effects that require policy interventions. The new economics of capital controls is addressed, in which capital controls may be introduced to reduce financial market distortions or to help stabilize exchange rate movements in the face of other market distortions. The empirical literature on the effectiveness of such policies is surveyed.
This first draft of this paper was originally prepared as background notes for 47th SEACEN Governors’ Conference, Seoul, Korea, 13-14 February, 2012. I thank Javier Bianchi, Menzie Chinn, Kristin Forbes, Jeffrey Frankel, Olivier Jeanne, Anton Korinek, Jonathan Ostry, and Andy Rose for useful comments on various versions of this paper. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.