In the wake of the recent globalfinancial crisis, emerging markets have seen a significantlyhigher degree of volatility in their capital flows. At theonset, all countries experienced sudden stops and increasesin risk premia. Following this initial period ofuncertainty, financial markets began to differentiatebetween the countries, and while most developing regionshave regained access to both, debt and equity issuance, thepace of recovery of capital inflows has been particularlyremarkable for some countries. Given the likelihood that theprevailing low interest rates in the developed world willremain for some time to come, and given the prospects offaster growth in emerging markets, it is likely that someemerging markets will experience significant surges incapital flows in the near future. This note examinespotential policy responses to maintain macroeconomic andfinancial sector stability in the face of increased capital inflows.
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