Essays on Capital Flows and Macroprudential Regulation

Capital flows to emerging economies are commonly regarded as volatile and are easily influenced by external shocks. For example, the recent sharp normalization of monetary policy in the U.S. could result in emerging markets experiencing capital flight and domestic exchange rate depreciations. Sharp exchange rate depreciations increase the cost of servicing foreign debt for emerging economies, which often have significant proportions of foreign currency debt. How should central banks and governments in emerging economies respond? We answer this question by proposing macroprudential policies which target the drivers of capital flows in the sectoral destinations of such flows. Unlike the recent literature on macroprudential policies, we show how it is crucial to identify the drivers of capital flows (specifically in sectoral destinations) in order to design policies to mitigate macro-financial risks and financial crises.