##cuniary externalities, of inefficient fluctuations in credit standards, or of other types of financial frictions may lead to perverse situations where these inflows result in excessive credit growth, risk taking, or misallocation of capital. an important amount of recent research has been devoted to understanding how an economy may borrow in excess and miss ‐ allocate credit. 3 of course, if we believe that these frictions are present and strong, first ‐ best policy actions should aim to undo them. but this may not be feasible, either because we are unsure about the presence, type, or magnitude of the frictions involved, or because first best policies cannot be implemented in the timeframe required. in such a situation, policymakers may have to resort to second best policies. we will address some of the roles of financial frictions in the transmission of foreign shocks in the presentation by javier garcia ‐ cicco this afternoon. on top of the difficulties with implementing first best policies, policymakers may feel compelled to act fast because past experience has led them to be wary of surges in capital inflows. history has taught us that these inflows have a tendency to end in sudden stops and sharp currency depreciations that for some countries may result in recessions and crises. in the session of tomorrow morning, the presentations by jaume ventura and sebnem kalemli ‐ ozcan will address some of the potential consequences of the capital inflows to financially ‐ integrated emerging economies : the appearance of asset price bubbles and the transmission of foreign shocks. these concerns have led several countries inside and outside latin america to implement interventions in the forex market, capital ‐ account ‐ management and macroprudential policies to reduce the financial vulnerabilities that may arise from real exchange rate misalignments, fast credit growth, maturity or currency mismatches, and housing price increases. these types of policies have been more prevalent among emerging markets. but they have also been implemented by developed countries. for instance, switzerland has actively intervened to maintain the value of the swiss franc relative to the euro, and south korea has for example, forbes and warnock ( 2012 ) indicate that global factors were the most important drivers of capital flows to emerging markets, especially debt flows. fratzscher ( 2012 ) uses an event study methodology to show that qe announcements had an effect on equity and debt flows to emerging economies. see bianchi ( 2011 )

being the external organizer of this conference, as well as sofia bauducco and andres fernandez for putting together such a wonderful program. i also thank all the speakers and contributors and look forward to the conference volume that will be published thereafter. let me finish by thanking maria jose reyes, constanza martinelli, carolina besa, daniela gaete, alvaro castillo, and both the public affairs department and the economic research department of the cbc for all their invaluable help managing the logistics of organizing the first hybrid annual conference. thank you and have a fruitful discussion over the next two days. 5 / 5 bis - central bankers'speeches