Capital flows during the pandemic: lessons for a more resilient international financial architecture

Abstract

This paper explores how the sudden stop in capital flows to emerging market economies associated with the Covid-19 pandemic unfolded, the substantial policy responses that were needed to alleviate it, and the lessons we might draw from this episode. We identify four areas where further work could be undertaken to enhance the policy response to capital flow pressures in the future: (i) addressing data gaps — particularly gaps in the composition of portfolio flows, in flows to low income countries, and on the timeliness of macroprudential and capital flow management policy responses; (ii) improving the resilience of non-bank financial intermediation as a source of financing for emerging market economies; (iii) understanding the effectiveness of different policy mix responses; and (iv) ensuring the global financial safety net is sufficiently resilient to cope with future severe and sustained capital flow shocks.