the attractiveness of a country to capital inflows and increase the expectation of future currency appreciation. the need to sterilize foreign currency purchases through open market operations to avoid pressures on inflation implies a carry - trade cost for the monetary authorities. also, the accumulation of international reserves involves the risk of valuation losses due to the appreciation of the local currency. a complementary approach to counter the possible undesirable effects of capital inflows is to strengthen the fiscal stance through the lowering of public spending, as well as deepening prudential regulation of the financial system. standing out in the second range of tools are capital, liquidity, and provision requirements, as well as caps on leverage ratios, on exposure to foreign exchange risks, and on lending. some of these measures have the advantage that they can be applied to diminish the possible surfacing of imbalances in specific sectors of the economy. conclusions the extraordinarily lax monetary policy of advanced economies helps explain the high capital inflows seen recently in emerging economies. although in principle they are beneficial, capital inflows, above all short - term, can end abruptly for reasons not necessarily related to the recipient country, causing financial instability and a drop in economic activity. to date, available information does not suggest the existence of generalized imbalances arising from the abundant supply of foreign funds in emerging markets. however, the authorities should remain vigilant for the consequences of capital inflows and act swiftly to prevent imbalances from breaking out that can magnify the impact of a possible interruption in capital flows. given the advantages and disadvantages of the tools available to face the risks associated with capital inflows, the strategy which seems preferable is the mitigation of possible adverse effects, especially through the strengthening of monetary and fiscal policies, and the deepening of prudential regulation of the financial system. bis central bankers ’ speeches

% in 2011, hard on the heels of the advanced nations. the imf recently estimated in its global economic outlook that while the contribution of emes to the global economic growth is expected to remain about 70 % for the next five years as in the late 2000s, their share in the global gdp is forecast to continue to increase to 54 % in 2016. for more specific details, you may refer to the results of the study conducted by the bank of korea recently in order to examine to what extent emes could drive the economic growth of advanced nations. according to the study, there are similar positive growth repercussions between emes and advanced economies, when controlling conventional macro and institutional factors. to put it another way, a 1 % increase of per capita gdp of advanced nations will lead to a 0. 4 % p per capita gdp growth in emes, and a 1 % increase in per capita gdp in emes will be translated into 0. 3 % p per capita gdp growth in advanced economies. given that the positive knock - on effects of growth between emerging and advanced economies are higher than a certain level, one country ’ s structural reform could have a positive impact on other countries ’ growth through such knock - on effects. if advanced and emerging economies carry out the structural reforms and expand market openness at the same time, the world economy will grow faster and more robustly. as we can learn from asian countries ’ experience in overcoming the late 1990s asian financial crisis very fast on the back of major advanced nations ’ robust economic growth, if emes can sustain their relatively high growth rates as at present, this will be greatly helpful to advanced nations in breaking free from the current dilemma of reducing sovereign debt or achieving economic growth. to catapult the world economy onto a sustainable growth trajectory, what would be the most desirable policies to be taken by major advanced and emerging economies? i cannot explain this in great detail, but i think that roughly five requirements should be met in order for the global economic recovery. 1 first, major advanced economies should establish a credible medium - term fiscal consolidation plan and put it into practice to put their sovereign finances on an even keel. excerpt from governor choongsoo kim ’ s speech on “ out of the great recession : an eme ’ s perspective ” as part of the distinguished lecture held by imfs ( institute for monetary and financial stability ) of goethe university. ( april 16, 2012 ) bis central bankers ’ speeches second, the negative spillover effects