Abstract
The free flow of capital is a reality in the era of globalization. It follows naturally from the international integration that increasing trade flows and technological advancements in communications have brought about. In this new environment, the challenge public authorities face is not how to restrict international capital flows, but how to prepare domestic conditions so that capital flows benefit the country the most or, alternatively, hurt it the least. The specific ways in which a policymaker should address the issues posed by capital flows depend on the particular area of the policymaker’s responsibility, whether banking supervision and regulation, fiscal and tax policies, or monetary management. The paper by Sundararajan, Ariyoshi, and Ötker-Robe provides a well-argued, complete, and comprehensive review of policy measures aimed to reduce vulnerabilities (and, on the contrary, profit) from the era of open capital accounts. I congratulate the authors for such a fine paper. However, if the strength of the paper lies in being comprehensive, that is also its main weakness. For actual policymaking, it is necessary to make precise and operational the concepts of good management proposed in the paper.
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