02614cas a2200301 a 4500 AALejournalIMF022369 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513589749 1018-5941 BD-DhAAL BD-DhAAL Yepez, Juan. Unintended Consequences of U. S. Monetary Policy Shocks : Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies / Juan Yepez. Washington, D.C. : International Monetary Fund, 2021. 1 online resource (32 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 Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency. This paper documents that this syndrome has been witnessed by many emerging markets and developing economies (EMDEs) as a result of surges in capital inflows driven by accommodative U. S. monetary policy. In a sample of 25 EMDEs from 2000-17, U. S. monetary policy shocks coincided with episodes of currency appreciation and a contraction in tradable output in these economies. The paper also shows empirically that the use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks. Against this background, the paper presents a two sector small open economy augmented with a learning-by-doing (LBD) mechanism in the tradable sector to rationalize these empirical findings. A welfare analysis provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality of costly resource misallocation as a result of greater capital inflows. However, the adequate calibration of CFMs and the quantification of the LBD externality represent important implementation challenges. Mode of access: Internet Foreign Exchange imf International Lending and Debt Problems imf Monetary Policy imf Open Economy Macroeconomics imf Resource Booms imf IMF Working Papers; Working Paper ; No. 2021/209 Full text available on IMF http://elibrary.imf.org/view/journals/001/2021/209/001.2021.issue-209-en.xml IMF e-Library