vulnerabilities. used in combination with other macroprudential tools, it could give monetary policy a freer hand in maintaining domestic macroeconomic and price stability. the reassessment is reflected in international discussions. in the autumn of 2011, g20 finance ministers and central bank governors drew up non - binding g. bekaert, c. r. harvey and c. lundblad, “ does financial liberalization spur growth? ” journal of financial economics 77, no. 1 ( 2005 ) : 3 – 55. e. s. prasad, r. g. rajan and a. subramanian, “ foreign capital and economic growth, ” brookings papers on economic activity 1 ( 2007 ) : 153 – 230. remarks by morris goldstein in presenting “ determinants and systemic consequences of international capital flows, ” international monetary fund occasional paper 77 ( march 1991 ). the so - called washington consensus refers to the idea of combining macroeconomic stability, trade and financial liberalization, and privatization. - 10 “ coherent conclusions for the management of capital flows drawing on country experiences. ” these conclusions accepted that capital controls could be appropriate, provided they were temporary, targeted and transparent. 15 this was complemented by the development by the international monetary fund ( imf ) of an “ institutional view ” that characterizes the role of capital controls as part of the macroeconomic policy tool kit. 16 however, capital controls, like tariffs on trade, have spillovers to other countries. this suggests a need for governance similar to that for trade restrictions. the organisation for economic co - operation and development ( oecd ) countries have entered into a legally binding agreement — the code of liberalisation of capital movements — which is also open to adherence by non - oecd countries. the g20 has established a working group on international financial architecture, which is focusing on managing the risks stemming from capital flow volatility. this group has highlighted a need for better data on the composition of capital flows to better identify currency and maturity mismatches. it is also supporting analytic work that draws lessons from countries ’ experiences in capital flow management. a broader goal is to complete the global financial safety net — the set of financing arrangements available to countries faced with unexpected reversals of capital inflows. for example, the group is exploring the scope for contingent debt instruments such as gdp - linked bonds that would provide insurance to countries that may be faced with adverse shocks. 17 these measures to strengthen the

as a whole is spending more than it earns from the rest of the world — a current account deficit. capital is flowing into canada, in various forms, to finance that deficit. the inflows are accommodating the needed economic adjustments that are taking place. the experience of many emerging - market and developing countries has been quite different. many of these countries have, at some time, faced the economic devastation of capital account crises, when sudden halts in foreign capital, often accompanied by capital flight by domestic residents, forces the economy through wrenching adjustments. in such episodes, capital flows take on a life of their own : they become a driver, rather than an enabler, of economic decisions. they can raise significant concerns for both economic and financial stability. in many of these countries, capital flows are seen as driven mainly by external forces, in particular, the monetary policies of the major advanced economies. in the eight years since the global financial crisis, ultra - low interest rates and unconventional monetary policy in the united states, the euro area and japan have created incentives to search for yield, which have led to large surges of foreign investment in many emerging - market economies ( emes ). there are concerns that these flows are not sustainable — that when monetary policies in the advanced economies return to normal, the flows could reverse in a disruptive way, particularly for those emes with weaker domestic fundamentals. we had a hint of that with the “ taper tantrum ” in 2013. 1 in the same vein, over the past week, market interest rates and capital flows worldwide have shifted sharply, along with changing perceptions of the direction of the economic policies of the united states. financial globalization raises another question : can a central bank still conduct an effective monetary policy to fit its own circumstances and objectives? international capital mobility has given rise to a “ global financial cycle ” through which asset prices, longer - term interest rates and capital flows in many countries tend to move together. but long - term interest rates and asset prices are key transmission channels through which monetary policy affects the national economy. if these channels are compromised, policy could become less effective. in canada, we have been living with an open capital account for several decades. but our flexible exchange rate gives us room to conduct an effective the term “ taper tantrum ” refers to how markets reacted in 2013 to comments by federal reserve chairman ben bernanke that the fed might slow down, or taper, the rate of bond