01888cas a2200253 a 4500 AALejournalIMF020932 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513545684 1018-5941 BD-DhAAL BD-DhAAL Lama, Ruy. Shocks Matter : Managing Capital Flows with Multiple Instruments in Emerging Economies / Ruy Lama, Juan Medina. Washington, D.C. : International Monetary Fund, 2020. 1 online resource (44 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study the optimal management of capital flows in a small open economy model with financial frictions and multiple policy instruments. The paper reports two main findings. First, both foreign exchange intervention (FXI) and macroprudential polices are tools complementary to the monetary policy rate that can largely reduce inflation and output volatility in a scenario of capital outflows. Second, the optimal policy mix depends on the underlying shock driving capital flows. FXI takes the leading role in response to foreign interest rate shocks, while macroprudential policy becomes the prominent tool for domestic risk shocks. These results highlight the importance of calibrating the use of multiple instruments according to the underlying shocks that induce shifts in capital flows. Mode of access: Internet Medina, Juan. IMF Working Papers; Working Paper ; No. 2020/097 Full text available on IMF http://elibrary.imf.org/view/journals/001/2020/097/001.2020.issue-097-en.xml IMF e-Library