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.