No. 589 - Capital flows during the pandemic: lessons for a more resilient international financial architecture

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by Fernando Eguren Martin, Mark Joy, Claudia Maurini, Alessandro Moro, Valerio Nispi Landi, Alessandro Schiavone and Carlos van HombeeckDecember 2020

The paper analyses capital flows to emerging economies during the pandemic, focusing on the sudden stop that occurred in the early stages. It describes the policy responses at country level and the measures taken by the International Monetary Fund. In addition, it provides an estimate of the emerging economies' demand for financial resources from the International Monetary Fund that could arise from a protracted sudden stop, using two alternative approaches: scenario analysis and the capital flows at risk.

The work documents the key role of non-bank financial intermediaries in causing the sudden stop. The response to the crisis in emerging economies includes the adoption of unconventional monetary policies and countercyclical macroprudential measures. The simulations set out in this paper suggest that in the event of a protracted sudden stop, the financing needs of emerging economies could exceed the Fund's resources.