factors. that looks like good news for policymakers in the region, who could reasonably conclude that they now have more policy space to address domestic shocks. some of the policy initiatives already mentioned – notably the increased use of macroprudential measures and stronger commitment to inflation targeting – likely contributed to this encouraging development. global synchronisation is intact 2 / 5 bis - central bankers'speeches this transition to seemingly more benign capital flows is not the whole story, though. while capital flows might be less linked to the global financial cycle than they once were, the same cannot be said for some important domestic economic variables. for example, the influence of the external cycle on gdp growth appears to have increased rather than decreased in the more recent period. domestic interest rates have also become more rather than less dependent on the global cycle. an apparent implication is that other markets or channels may have taken over the role of traditional portfolio and other capital flows in transmitting external shocks to emerging economies. possible alternative channels could include trades in currency and interest rate derivatives, which have grown significantly since the global financial crisis. other channels, including trade channels, may be doing more to transmit external shocks, although the evidence for this is preliminary. further, it may be the case that emerging market economies pre - emptively adjust monetary policies to major shifts in interest rate cycles of monetary - dominant advanced economies, in addition to internal balance factors. while the increased independence of capital flows from the global financial cycle is a promising sign for the development of policy autonomy and countercyclical policy space, it is clear that global factors are still important determinants of domestic prices and activity in asian emerging market economies. policy considerations policymakers in the region recognise that we do not have the luxury of adopting a neat, textbook approach to the world. we cannot assume that capital flows will always respond to push the economy towards equilibrium. capital flows ought to respond to fill in savings - investment gaps, and exchange rates shift to reduce imbalances in the external sector. but we are often in a second - best world, in which fund flows are more driven by the short - term search for yield through carry trades, and by push factors related to the particular fiscal - monetary policy mix of the sending countries. in these circumstances, inflation targeting remains an appropriate policy to respond to external shocks, supported by a credible fiscal policy framework. policies to support economic and financial resilience include maintaining an adequate level of foreign reserves and building capital and liquidity buffers

edward s robinson : managing external shocks - asia's shifting experience with capital flows remarks by mr edward s robinson, deputy managing director ( economic policy ) and chief economist of the monetary authority of singapore, at the 2024 beijing financial street forum on " improving modern central bank systems, enhancing macrogovernance ", beijing, 18 october 2024. * * * distinguished speakers and guests, good afternoon introduction it is an opportune time to address the impact of us fed policy on the global economy and on asia. after a series of negative shocks, from the covid pandemic, to supply chain disruptions, to the rapid tightening of interest rates in industrialised economies, asian economies are now facing the more favourable prospect of falling interest rates in the us, europe and elsewhere. lower rates should help boost local economies, improving the outlook for capital inflows and creating space for asian central banks to loosen policy domestically, should local conditions warrant it. but every opportunity comes with risks. these include the possibility that inflation will resurge, the chance of recession as still - restrictive monetary policy continues to percolate through some markets, and the disconcerting spectre of global fragmentation. in considering how these risks might propagate through the global economy, i would like to focus on the effects of capital flows, historically a major channel for transmission of shocks. primacy of the global financial cycle asia's open trading economies have been susceptible to waves of sometimes destabilising capital flows, from surging inflows in boom times to sudden stops when risk appetite drops. driving the flows, at least in part, were economic conditions in the large, industrialised economies and the monetary and fiscal policy settings associated with them. experience from the asian financial crisis, the global financial crisis, and other episodes suggests that policymakers can be severely constrained in responding to these surges and stops, and that responses tended to be procyclical – loosening policy in the face of inflows and tightening to limit outflows. this history has led some researchers to propose the notion of a global financial cycle that can dominate financial conditions in emerging and smaller industrialised economies. on a strong interpretation of this view, the power of the global financial cycle has compressed the traditional trilemma of international economics into a dilemma, forcing a choice between an open capital account or monetary policy autonomy. 1 experiences with capital flows 1 / 5 bis - central bankers'speeches however, the experience of asian