EMEs have limited policy independence if open to capital flows, researchers find

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Emerging markets have limited freedom to set monetary policy if they have open capital accounts and high external debt, researchers find in a paper published by the Bank for International Settlements (BIS).

In the paper, Paolo Cavallino and Damiani Sandri examine whether emerging market economies can have both monetary independence and open capital accounts.

They find that monetary easing causes a capital outflow, forcing banks to absorb bonds liquidated by foreign investors. This increases

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