{ "title": "Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies", "publication": "IMF Working Papers, August 6, 2021", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349", "canonical": "https://www.imf.org/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349", "overlayPath": "/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/index.md", "summary": "Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency.", "sections": [ { "heading": "Abstract and Scope", "content": "- Author: Juan Yepez\n- Date: August 6, 2021\n- Sample and period: 25 EMDEs from 2000-17\n- Pages: 32\n- Volume: 2021\n- Issue: 209\n- Series: Working Paper No. 2021/209\n- DOI: https://doi.org/10.5089/9781513589749.001\n- Stock No: WPIEA2021209\n- ISBN: 9781513589749\n- ISSN: 1018-5941" }, { "heading": "Key findings", "content": "- Dutch disease definition: large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency.\n- Empirical evidence:\n - U. S. monetary policy shocks coincided with episodes of currency appreciation in the sample of 25 EMDEs from 2000-17.\n - U. S. monetary policy shocks coincided with contractions in tradable output in these economies.\n - The use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks.\n- The paper documents that surges in capital inflows driven by accommodative U. S. monetary policy have been associated with a Dutch disease syndrome in many EMDEs." }, { "heading": "Model and theoretical contributions", "content": "- Model structure:\n - A two sector small open economy model augmented with a learning-by-doing (LBD) mechanism in the tradable sector is presented to rationalize the empirical findings.\n- Welfare analysis:\n - Provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality arising from costly resource misallocation due to greater capital inflows.\n- Implementation challenges:\n - Adequate calibration of CFMs represents an important challenge.\n - Quantification of the LBD externality represents an important challenge." }, { "heading": "Policy implications and recommendations", "content": "- CFMs can be justified as a second-best policy tool to mitigate adverse reallocations and preserve long-term tradable-sector learning-by-doing benefits when private agents ignore LBD externalities.\n- Policymakers face two critical implementation tasks:\n - Calibrating CFMs appropriately to balance short-term capital flow management and long-term tradable-sector learning.\n - Quantifying the magnitude of the LBD externality to inform policy design.\n\nIMF Working Papers — Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies, By Juan Yepez, August 6, 2021.\n\n---\n\n Content in this bundle\n\n- Working Paper\n - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/index.md)", "[Structured JSON version](/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/index.json)", "[Bundle manifest](/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/bundle-manifest.json)", "Authors: Juan Yepez", "Published: August 6, 2021", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781513589749.001", "Author: Juan Yepez", "Date: August 6, 2021", "Sample and period: 25 EMDEs from 2000-17", "Pages: 32", "Volume: 2021", "Issue: 209", "Series: Working Paper No. 2021/209", "DOI: https://doi.org/10.5089/9781513589749.001", "Stock No: WPIEA2021209", "ISBN: 9781513589749", "ISSN: 1018-5941", "Dutch disease definition: large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency.", "Empirical evidence:", "The paper documents that surges in capital inflows driven by accommodative U. S. monetary policy have been associated with a Dutch disease syndrome in many EMDEs.", "Model structure:", "Welfare analysis:", "Implementation challenges:", "CFMs can be justified as a second-best policy tool to mitigate adverse reallocations and preserve long-term tradable-sector learning-by-doing benefits when private agents ignore LBD externalities.", "Policymakers face two critical implementation tasks:", "**Working Paper**" ], "related": [ { "title": "Working Paper", "role": "paper", "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021209-print-pdf.pdf", "summary": { "path": "/-/media/files/publications/wp/2021/english/wpiea2021209-print-pdf.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/wp/2021/english/wpiea2021209-print-pdf.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/index.md", "json": "/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/index.json", "bundleManifest": "/en/publications/wp/issues/2021/08/06/unintended-consequences-of-u-s-463349/bundle-manifest.json" }, "generatedAtUtc": "2026-09-16T20:03:47.313Z" }