## The Multilateral Aspects of Policies Affecting Capital Flows

_Policy Papers, October 13, 2011_

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## Bibliographic details
- Published: October 13, 2011
- Series: Policy Papers

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### Executive summary
- The crisis is prompting a reconsideration of capital flows and the policies that affect them.
- A breakdown in the domestic stability of a large country can spill over into stress in other countries and even to the global system as a whole.
- The activities of global institutions and markets—some regulated and some not—can bear on the riskiness of flows.
- National policies affecting capital flows can transmit multilaterally; this transmission has not been fully appreciated by national policymakers.
- National policymakers may not have incentives to take full account of the cross-border effects of their policies.
- The upward trend in the volume of capital flows can be expected to continue, making it ever more important to address the associated cross-border risks.

### Purpose and scope of the paper
- Aim: to draw greater attention to the multilateral aspects of policies affecting capital flows.
- Complementarity: Previous Fund work focused on policies of recipient countries, mainly emerging market economies (EMEs), and addressed the circumstances in which capital flow management measures (CFMs) would be appropriate.
- This paper provides a complementary assessment of:
  - regulatory and supervisory policies of advanced economies;
  - large advanced economy monetary policy;
  - the multilateral transmission of CFMs.

### Key themes and findings
- Spillovers and systemic risk:
  - Domestic instability in a large country can create stress that spills over to other countries and the global system.
- Role of global institutions and markets:
  - Both regulated and unregulated global institutions and markets influence the riskiness of capital flows.
- Policy transmission and incentive problems:
  - National policies affecting capital flows can have cross-border effects that are not fully internalized by national policymakers.
  - Policymakers may lack incentives to take full account of these cross-border effects.
- Emerging trend and policy urgency:
  - The upward trend in the volume of capital flows is expected to continue, increasing the importance of addressing associated cross-border risks.

### Policy implications and areas for attention
- Need for greater multilateral perspective in designing policies that affect capital flows.
- Assessment and possible calibration of:
  - regulatory and supervisory frameworks in advanced economies;
  - monetary policy in large advanced economies;
  - the design and potential cross-border effects of capital flow management measures (CFMs).
- Importance of international cooperation and surveillance to manage cross-border externalities from national policies.

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## Content in this bundle

- **The Multilateral Aspects of Policies Affecting Capital Flows; IMF Policy paper; October 13, 2011**
  - [The Multilateral Aspects of Policies Affecting Capital Flows; IMF Policy paper; October 13, 2011 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_101311.pdf.md){rel="alternate" type="text/markdown"}
  - [The Multilateral Aspects of Policies Affecting Capital Flows; IMF Policy paper; October 13, 2011 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_101311.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/the-multilateral-aspects-of-policies-affecting-capital-flows-pp4613_