Seminar in Macroeconomics - Julien Bengui (Swiss National Bank)

Inflation and Capital Flows

Tuesday 17 December 2024 - 12h15 to 13h30 - General public

Extranef 109



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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 the most severely hit countries and delivering overall welfare gains.

Published from 20 August 2024 to 18 December 2024
Gianluca Benigno
Visibility:
published