External Shocks, the Exchange Rate and Macroprudential Policy

Abstract

In this session, we shall have presentations on capital flows, on credit cycles and on policies in an oil-exporting economy. By way of introduction to how these topics are linked, I would like to underline the key role of the exchange rate and explain what Bruno and Shin (2015) have called the risk-taking channel of currency appreciation. The debate on the policy response to external shocks in emerging market economies (EMEs) is often coloured by the perception that the exchange rate is not a very reliable stabilising mechanism. Events over the 2014–16 period seem to have reinforced this perception.

Full publication: Macroprudential Policy