Summary of the General Discussion on “Exchange Rate Flexibility, Financial Market Openness, and Economic Growth”

Maria Socorro Gochoco-Bautista questioned the hypothesis of the paper, which examines the role of exchange rate flexibility on growth. She thought this was a misinterpretation of Rey's paper on the inapplicability of the Mundellian trilemma given capital mobility. Rey points out that asset prices, capital flows, credit growth, and so forth, follow global factors. As a result, there is a loss of monetary independence. The latter is a problem because a country's business cycle typically does not follow the global financial cycle. Without monetary independence, therefore, countries lose the use of monetary policy to implement countercyclical policy in their countries. Rey then states that to have some measure of independence, authorities should use some capital flow management measures in addition to having more flexible exchange rates. Exchange rate flexibility is no longer sufficient to insulate the real economy from external shocks in the face of capital mobility, contrary to the...