Capital Flow Volatility in Latin America—Will Next Time Be Different?

Extreme episodes of capital flow volatility have long been a concern for policymakers in Latin America because of the threat that they pose to macroeconomic and financial stability. In the decade following the Great Financial Crisis of 2008-09, capital flows seemed to move more in ripples than in waves as the importance of local drivers strengthened relative to global factors. Yet, the region saw substantial capital outflows during the 2013 Taper Tantrum, and the 2020 Covid shock triggered even larger outflows. The response of Latin American policymakers to the Covid shock was different than during past episodes of extreme volatility. This time, they cut interest rates, intervened in bond markets, and loosened fiscal policy. What lessons can be learned from Latin America’s recent experience? Looking forward, what might happen when advanced economies start tightening their monetary policy? In this panel, policymakers, academics, and private sector representatives will discuss changes in patterns of capital flows and what mix of policies can help to mitigate capital flow-related risks. If you have questions for our panelists, please submit them to [email protected], tweet @CGDev #CGDTalks, or submit your comments via YouTube.