 Let me thanks for having the opportunity to discuss this So my the structure of my talk is basically I'm gonna quickly review the what we sort of have Know from the point of view of research about capital flows and capital controls And then I go in the second half a little bit to the data and then comment comment on the current situation What we get and I should say of course this is I'm not an emerging country Economist or central bar. This is a view from from the euro area central banking Perspective more so so I'll go very quickly because this is all pretty common ground Many of you know it and you can look at the slides afterwards, of course the the the the Capital flows literature is is ripped with various empirical paradoxes the basic theory basic theory says that Capital should flow from the rich countries to the poor countries and it doesn't in according to the data So there's you know various various reasons for that and and and and discussions of that And and and the you know the it is very empirically very difficult to find these these kinds of correlations Correlations that would suggest this this standard theory. So this is we are we are in an empirical puzzle and and The basic theory doesn't seem to go and of course, you know if you go to observations for example, India and China which you know which have you know taken off well and Developing rapidly did not rely on foreign capital This is one of the good examples of this paradox that they they've lied on domestic financing this So the question also on the point is then well, what about the financial liberalization then then this Where might these these benefits be if they are not in this in this kind of Standard views and there being some different papers which you know suggest that they might be some broader ideas of benefits something which various be you know call sometimes referred to as collateral benefits or various sort of institutional or market structure governance structure question but again there again the evidence is very mixed and And and and certainly one one idea in the literature is there's been to say that yeah Maybe the poorest countries you don't really get these kind of collateral benefits But it requires a certain level of development so that you can then improve the improve these these Aspects further if you don't have a very if you're in a very basic situation Then that's not gonna that's not gonna help you with it. So we have this this paradox that Capital flows the general view is the capital flows are probably beneficials and and and and there are benefits, but where are they we don't quite know in the way of literature So that's that's the setting Really that we have and then and then the question is what about let me then move on to the second part Which is that what about what do we know about the? The recent developments, I mean, you know, so I'll have some graphs about the capital flows And focus on the recent developments, especially after the 2007-8 financial crisis and there are some interesting views here. So here's some data So here's one which is which is about the debt securities internationally what are the flows and and one thing you clearly see here is that there has been a trend change after about 2008 After the you know with the financial crisis there came a trend trend chase at the debt security securities There the rate of growth has accelerated quite significantly as you can see See from the figure if you go to up to about 2008 You see a little bit that's the recession and then then you have a very fast trend You know high trend and before that the modest trend in capital flows into into into these cuts So that's the debt security. What about the others here's portfolio investment There's portfolio investment and and there, you know, it's the reverse in fact that we had before to we had before the financial crisis the growth rate in in in these in in in these portfolio investment liabilities was faster than After after the 2008 9 great recession there was a decline there But after that the rate of the rate of growth is much more modest and if we then go to Direct investment flows the interesting phenomenon here is there have been fluctuations Before that but after the financial crisis. Yeah, maybe there was a little bit of increase But that could be just coming out of the great recession, but then from about 2011 onwards It's flat basically. There's basically no trend So what we've seen in the financial broad picture is that is is then that the you know, the debt securities build up Build up of debt securities accelerated after the financial crisis Portfolio investment growth decelerated somewhat and FDI we had pretty fast growth though cyclical before but now since 2011 it has leveled off completely So so you know that you know the so the this is telling you you are you know in fact after the financial crisis We've been having this this sort of hot money or fast money Capital movements in Into the emerging countries very much So that's that's the that's the situation In it and then on the other end we have some other developments here Which we have which is of course the globalization means that that it's harder to maintain closed capital cuts You know if you once you get into certain stages of development You start to have international companies in the country and so forth and they have ways of getting around capital controls if you try to keep This is now I've heard you know, I'm not an expert on the subject, but this is a key issue I believe for some emerging economies and in fact this isn't something which happened before I can only refer to the Nordic countries including Finland in the 1980s When we started to get major international companies and they found ways of getting around the capital controls and that eventually Led to the abandonment of capital flows in the Nordic countries So that's the that's the setting, you know, I think now which is that we have more dead focus based Capital flows into emerging countries. We have this pressure from globalization To to to open the capital accounts. So and and then the literature is is is kind of Ambiguous a little bit ambiguous and not so strong saying that where are the where are the benefits from capital account liberalization? So clearly clearly a modest conclusion here is we you got to proceed carefully if you have to do it Though, you know, big path because of the pressure pressure from globalization Of course, but then we also know that you can Find think of conditioned when when this kind of liberalization could be done with with less risk than before One of course is the high reserves. I mean, you know, we have now developing economies with high reserves that in principle allows for possibilities to possibilities to go for capital account Liberalization though perhaps political economies that might go the other way there saving high savings rate is another one which Which might might be a good thing because then especially if you have high reserves You might you might have you might have outflows and if you know and the high savings rate might also induce Yes, it's outflows and that actually is is is probably again good thing But within limits, you know, it could be could be could be going too far But in principle it can balance the situation often like in the earlier advanced economies when the in the 1980s Liberalized the capital flows they were usually cutting the down deficit countries So then you had these risks big bigger risks now now you could have a more balanced situation in here Changes in monetary policy regimes have also, you know from going for more flexibility in exchange rates Could also reduce the risks, but but you can't eliminate the risks of big capital inflows for and high trade openness again, which has on the you know come at least in some countries on the basis of these all these Globalization and more trade Can also make the more give some more resilience to the problems that you that might come after capital account liberalization So let me let me then Move on comment start to comment on this and especially start with the current situation We saw we saw what the debt flows where and what the structure change has been in this and And so this compositional change of course means that there is a somewhat higher risk because if you have more Debt-based capital flows you're gonna have you're gonna have the risk of fast movements in the in the flows And therefore again from the liberalization this could this could lead into difficulties The most recent developments also of course, you know What's happening has started to happen this year and to some extent last year is that we are starting to see also reversals So let me just show one figure, which is China So here's the capital flows to China and we starting to see that 2014 and especially 15 are very different from the earlier years earlier years Though there are fluctuations earlier and so this is telling if you know If these reversals are starting to happen And and they are happening in other parts probably as well in the future Then again the situation about the liberalizing capital accounts is going to be again more risky More risky you are getting into into into a change in development And that could be mean spell more risks in in capital account liberalization And then let me conclude with a couple of remarks about about monetary policies Which I think was also was also in in a compost remarks one one aspect Which is that the question about question about Monetary policy, you know, and if I take the US and your area, they basically, you know, the puzzle, you know the Difficulty is that they are geared towards domestic objectives I mean if you look at the mandates of of central banks, central banks, they have domestic objectives Even the even the big ones your area doesn't have any, you know, if I look at the mandate of the ECB There is no international objective there really except except Concerning concerning possibly the exchange rate in some situations and similarly the Federal Reserve in the US is So the so this difficulty difficulty is that Is that they really because there is no international objective Then then that that indeed means that there's need and we've seen and it was mentioned already by this first speaker that there's Need to increase the resilience of the global financial system But the the current monetary policy arrangements do not allow or do not make room for that And this this I think is a major development Of course, this has been discussed many times before and we know how difficult this kind of coordination issues are So so I'm not quite sure where the progress is But one one possibility where we might be able to do a little bit more in You know and as a way to improve prove the resilience of the financial system is if we look at the capital flows and Which is that we should try maybe via regulation Maybe some other means to go for more more sort of a security equity and security based international financial flows And away from the from the fast money bank center finance and and unfortunately the trend During the fight last financial crisis seems to be the opposite So there is an again another need where we might want to want to go about think about in the future And that this may be an easier way than finding ways to go internationally coordinate monetary policies Thank you