Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272990 
Year of Publication: 
2022
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2022-46
Publisher: 
Bank of Canada, Ottawa
Abstract: 
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.
Subjects: 
Inflation and prices
International financial markets
International topics
Monetary policy
JEL: 
D62
E52
F32
F38
F41
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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