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International Monetary Fund
Policymakers often face difficult tradeoffs in pursuing domestic and external stabilization objectives. The paper reflects staff’s work to advance the understanding of the policy options and tradeoffs available to policymakers in a systematic and analytical way. The paper recognizes that the optimal path of the IPF tools depends on structural characteristics and fiscal policies. The operational implications of IPF findings require careful consideration. Developing safeguards to minimize the risk of inappropriate use of IPF policies will be essential. Staff remains guided by the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows.
International Monetary Fund

characteristics, initial conditions, and the nature of shocks affect whether the use of multiple policy tools is warranted. They appreciated the breadth and depth of the analysis, including advances in modeling, extensive empirical work, and informative case studies. Directors agreed that the paper highlights the main tradeoffs in the use of multiple tools, although many Directors also stressed the importance of other considerations, including integrating fiscal policy more fully into the analysis, exploring more deeply multilateral implications or spillovers of IPF policies

International Monetary Fund

considerations, explore more deeply multilateral implications of IPF policies, extend the existing analysis of intertemporal tradeoffs, including through greater understanding of the long-term effects of CFMs and FXI, and derive relevant lessons from the COVID-19 crisis. The operational implications of IPF findings require careful consideration . The analytical work conducted under the IPF umbrella represents a significant advancement in thinking and modeling, building on developments in the economics profession over the past decade. Nevertheless, operationalizing these

International Monetary Fund

minimize the risk that IPF policies are used inappropriately will be key in translating the framework’s findings into implementable policy advice. In countries with deep foreign exchange markets and continuous market access, fully flexible exchange rates are typically optimal. 11 In contrast, frameworks that incorporate the types of frictions common in EMDEs suggest a role for other tools under certain circumstances. FXI, MPMs and CFMs can enhance monetary autonomy in countries with shallow FX markets when faced with global financial market shocks, allowing monetary

International Monetary Fund. Strategy, Policy, and & Review Department

inappropriate use of IPF policies will be essential. 11 Better and more timely foreign exchange intervention data are needed to exercise surveillance over exchange rate policies. Timely peer-learning would strengthen staff capacity in this area. New insights from the IPF, in conjunction with the IEO review on capital flows, will also inform the upcoming review of the Institutional View (IV). In addition, incorporating fiscal considerations more fully into the analysis and exploring more deeply the multilateral implications of IPF policies would further support the unified

International Monetary Fund. Strategy, Policy, & Review Department
Fund surveillance needs to evolve to face the economic and financial challenges that will shape the global landscape for years to come. This paper first takes stock of the current economic and financial landscape. To better serve the membership in this context, Fund surveillance should be prioritized around four key priorities: (i) confronting risks and uncertainties: policymakers will need to actively manage the risks of a highly uncertain outlook; (ii) preempting and mitigating adverse spillovers: shifting patterns of global economic integration will bring about new channels for contagion and policy spillovers; (iii) fostering economic sustainability: a broader understanding of sustainability to better account for the impact of economic and non-economic developments on stability; and (iv) unified policy advice: better accounting for the trade-offs and synergies among different policy combinations in the face of limited policy space and overlapping priorities, tailored to country-specific circumstances. These priorities should further enhance the traction of Fund surveillance.