Comments on “Real Convergence, Capital Flows, and Monetary Policy: Notes on the European Transition Countries,” by José Viñals


I very much enjoyed reading Lipschitz, Lane, and Mourmouras’s insightful and thought-provoking paper. It addresses extremely important issues for the new member states (NMS), such as how to further real convergence and deal with capital flows. The authors use both real and financial economy arguments—namely, the production function and competitive equilibrium conditions, on one hand, and financial arbitrage conditions, on the other—to argue that capital flows to NMS are bound to be very large. Moreover, they argue that, given the intrinsic volatility of capital flows, these countries are likely to become more vulnerable to capital flow reversals that could complicate the conduct of monetary and exchange rate policies and undermine macroeconomic stability.