polices are tools complementary to the monetary policy rate that can largely reduce inflation and output volatility in a … scenario of capital outflows. Second, the optimal policy mix depends on the underlying shock driving capital flows. FXI takes … the leading role in response to foreign interest rate shocks, while macroprudential policy becomes the prominent tool for …

We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small … open economy model subject to the risk of sudden stops—large recessions together with abrupt reversals in capital inflows …| and characterize optimal macroprudential policy in response to these shocks. In the model, collateral constraints create a …

capital markets, monetary independence and pegged exchange rates. The present paper is a natural extension of Escude (A DSGE …

policy responses for managing such volatility. It also sheds light on some economic costs that stem from volatile capital …