Integrated Policy Framework

Overview

IMF’s research on a new analytical approach to help countries respond to fluctuations in international capital flows

Cross-border capital flows provide significant benefits but may also generate or amplify shocks. Small open economies can be particularly vulnerable to swings in international capital flows. How should they respond? The traditional answer has been to use flexible exchange rates as a shock absorber. But flexible exchange rates may not offer full insulation from external shocks, for example, when financial markets do not work perfectly.

As a result, policy makers often reach for a mix of tools including intervention in the currency market, and macroprudential and capital flow management measures. These policy responses vary substantially across countries and over time. A significant shortcoming of this eclectic approach is the lack of clear frameworks.

Over the course of 2019 and 2020, IMF staff has made a major push to develop conceptual and quantitative models taking greater account of real-life frictions and vulnerabilities to guide how these tools should be used in an integrated way, as explained in a recent IMF blog. The modeling effort is also being complemented by extensive empirical analysis and country case studies. The combined work should provide useful insights to policy makers on when and how to deploy multiple tools with special attention to their interactions, country-specific characteristics, initial conditions and the nature of the shocks. The policy paper that was published in October 2020 summarizes key analytical findings from staff’s work under the Integrated Policy Framework umbrella.

IMF Research on Integrated Policy Framework

Empirical Analysis

Capital Flows at Risk: Taming the Ebbs and Flows
December 20, 2019

IMF Working Paper

One Shock, Many Policy Responses
January 17, 2020

IMF Working Paper

US Monetary Policy and International Risk Spillovers

Proceedings of the 2019 Jackson Hole Symposium, forthcoming

Facing the Tides: Managing Capital Flows in Asia
August 22, 2019

IMF Departmental Paper

Capital Controls: Theory and Evidence

November 2019
NBER Working Paper

Capital Flow Deflection

March 2017
Journal of International Economics, Volume 105

Domestic and Multilateral Effects of Capital Controls in Emerging Markets

November 2018
Journal of International Economics, Volume 115

Estimated Policy Rules for Capital Controls
June 6, 2020

IMF Working Paper

Capital Flows at Risk: Taming the Ebbs and Flows
December 20, 2019

IMF Working Paper

One Shock, Many Policy Responses
January 17, 2020

IMF Working Paper

US Monetary Policy and International Risk Spillovers

Proceedings of the 2019 Jackson Hole Symposium, forthcoming

Facing the Tides: Managing Capital Flows in Asia
August 22, 2019

IMF Departmental Paper

Capital Controls: Theory and Evidence

November 2019
NBER Working Paper

Capital Flow Deflection

March 2017
Journal of International Economics, Volume 105

Domestic and Multilateral Effects of Capital Controls in Emerging Markets

November 2018
Journal of International Economics, Volume 115

Estimated Policy Rules for Capital Controls
June 6, 2020

IMF Working Paper

Publications