TY - BOOK ID - 146594067 TI - Integrated Monetary and Financial Policies for Small Open Economies AU - Basu, Suman. AU - Boz, Emine. AU - Gopinath, Gita. AU - Roch, Francisco. AU - Unsal, Filiz. PY - 2023 SN - 9798400251887 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Central Banks and Their Policies KW - Currency crises KW - Economic & financial crises & disasters KW - Economics of specific sectors KW - Economics KW - Economics: General KW - Financial Institutions and Services: Government Policy and Regulation KW - Informal sector KW - Macroeconomics KW - Open Economy Macroeconomics UR - https://www.unicat.be/uniCat?func=search&query=sysid:146594067 AB - We develop a tractable small-open-economy framework to characterize the constrained efficient use of the policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. The model features dominant currency pricing, shallow FX markets, and occasionally-binding external and domestic borrowing constraints. We characterize the conditions for the “traditional prescription”—relying on the policy rate and exchange rate flexibility—to be sufficient, even if externalities persist. The conditions are satisfied for world interest rate shocks if FX markets are deep. By contrast, we show that to manage non-fundamental inflow surges and taper tantrums related to local currency debt, capital inflow taxes and FX intervention should be used instead of the policy rate and exchange rate flexibility. In the realistic case where countries face both shallow FX markets and external borrowing constraints, we establish that some kinds of FX mismatch regulations may reduce the external debt limit friction but worsen FX market depth. Finally, we show that capital controls and domestic macroprudential measures cease to be perfect substitutes if there is a risk that the domestic borrowing constraint binds as a result of the transmission of the global financial cycle. ER -