However, and this is a point I have made elsewhere, monetary policy is too blunt an instrument for addressing specific risks to financial stability, and it can sometimes cause collateral damage to the rest of the economy if it tries to do so. [10] An integrated policy framework could perhaps shed light on the circumstances under which monetary policy could also serve financial stability objectives, and whether there are benefits to jointly calibrating monetary policy and macroprudential policy, as well as how this calibration should be done. The BIS and IMF have both been undertaking research on these issues. Central bankers have at the same time gained considerable experience in employing an eclectic mix of policy instruments, with varying degrees of success. There is merit in bringing these practical experiences to bear in formulating an integrated policy framework. Conclusion Developing eﬀective policy instruments and using them in a coherent fashion will enhance macroeconomic and macro-financial stability. It will help to make financial globalisation safer, especially for EMEs, at a time when there are growing risks of fragmentation in international economic relationships. Your task is therefore vital. I wish you a fruitful conference ahead. [1] IMF Balance of Payments, IMF International Financial Statistics, MAS calculations. [2] Fratzscher, M., Lo Duca, M. and Straub, R. (2013), “On the international spillovers of US quantitative  easing”, ECB Working Paper No. 1557; Bhattarai, Chatterjee, and Park (2017), “Global Spillover Eﬀects of US Uncertainty”, Fed Reserve Bank of Dallas, Working Paper No.

Volatility almost doubled in the three years post-global financial crisis compared to the three years preceding the crisis. [3] Volatility has since remained elevated. Third, large and volatile capital flows can create some serious trouble for EMEs. What flows in can flow out as easily, and such reversals can be disruptive for EME financial markets which are typically not deep enough to smoothly intermediate the flows. Capital flows can induce exchange rate fluctuations that are disconnected from macroeconomic fundamentals. There is growing empirical evidence that capital flows to EMEs have grown in importance as a driver of exchange rate movements. [4] In particular, capital flows can cause cyclical deviations to exchange rates beyond movements driven by the current account of the balance of payments. In the face of large and volatile capital flows, a freely floating exchange rate can become a shock amplifier rather than a shock absorber. [5] Capital flows can trigger financial stresses or exacerbate domestic financial vulnerabilities. Strong capital inflows risk fuelling domestic credit and asset price bubbles, heightening risks to macro-financial stability in EMEs. A recent MAS study found that a 1% appreciation of the US Dollar is associated with net capital outflows of 0.3% of GDP for EMEs in the following quarter. [6] Fourth, large and volatile capital flows are here to stay. Ageing populations and slower productivity growth in the advanced economies suggest that the natural rate of interest, r-star, is likely to remain low, making the search for yield and resultant capital flows persistent rather than episodic.