Inflation and Capital Flows

Julien Bengui and Louphou Coulibaly

No 30652, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the latest monetary policy tightening cycle, capital has been flowing from jurisdictions with the least aggressive hiking profiles to those with the most aggressive ones. This pattern of capital flows is consistent with the predictions of a standard open-economy model with nominal rigidities where cost-push shocks generate an inflationary episode and capital flows freely across countries. Yet, by raising demand for domestic non-tradable goods and services, capital inflows cause unwelcome upward pressure on firms’ costs in countries most severely hit by these shocks. We argue that a reverse pattern of capital flows would have improved the output-inflation trade-off globally, hence requiring a less aggressive monetary tightening in most severely hit countries and delivering overall welfare gains.

JEL-codes: E32 E44 E52 F32 F41 F42 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-mon and nep-opm
Note: IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w30652.pdf (application/pdf)

Related works:
Working Paper: Stagflation and Topsy-Turvy Capital Flows (2022)
Working Paper: Inflation and Capital Flows (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:30652

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30652

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().