Stagflation and topsy-turvy capital flows

Arbeitspapier

Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy's supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on marginal costs in countries where monetary policy is trying to drive down costs to stabilize inflation. Yet market forces are likely to generate such inflows. Optimal capital flow management instead requires net outflows, suggesting topsy-turvy capital flows following markup shocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2022-46

Classification and Topics

• Classification: Wirtschaft ; Externalities ; Monetary Policy ; Current Account Adjustment; Short-term Capital Movements ; International Financial Policy: Financial Transactions Tax; Capital Controls ; Open Economy Macroeconomics
• Subject: Inflation and prices ; International financial markets ; International topics ; Monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bengui, Julien ; Coulibaly, Louphou
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2022

Further information

• DOI: doi:10.34989/swp-2022-46
• Handle: http://hdl.handle.net/10419/272990
• Last update: 10.03.2025, 11:43 AM CET