The provision of foreign exchange liquidity by emerging market central banks during the global shock of 2008-09 departs from the domestic liquidity lender of last resort role described by Bagehot in his classic "Lombard Street." This paper documents and analyzes the foreign exchange liquidity providing measures of the Banco Central do Brasil (BCB) in response to varied market stresses. These measures appear to have reduced the relative onshore cost of dollar liquidity on impact and seemed to stabilize market expectations of exchange rate volatility. The results suggest that foreign exchange liquidity easing operations may become a standard central bank tool.

This paper draws on a unique data set on the nontraditional systemic liquidity easing measures recently undertaken by many emerging market economies. It offers an empirical analysis of the key determinants affecting the decision to undertake these measures over the period September 2008-March 2009. The paper finds that economy size, access to international credit markets, CDS spreads, currency depreciation, and current account balances are among the key factors influencing the adoption of these measures. It provides a rationale for the differences in central bank policy responses, which reflect differences in economic structures rather than conflicting views on fundamental principles. The paper also provides a preliminary assessment of the effectiveness of these measures and points out that despite their positive impacts, they have not fully shielded the real economy from the recent financial meltdown.

A multispeed global recovery is under way, with some emerging markets in the lead and the major advanced economies growing more slowly. This macroeconomic setting has brought a return to easy global financial conditions and high commodity prices-a situation likely to be sustained for some time but unlikely to be permanent. Against that external backdrop, the recovery in the Latin America and Caribbean region overall is advancing faster than anticipated, but moving at different speeds across countries. The report discusses the varying policy challenges that different countries face as the global recovery proceeds. Chapter 1 analyzes the global setting and the outlook for the United States and Canada in particular, while Chapter 2 focuses on the outlook for Latin America and the Caribbean. Chapter 3 looks in depth at the challenges arising from the return of easy external financial conditions. Together with high commodity prices, such conditions represent favorable "tailwinds" for many countries of the region, but also carry risks for policymakers to address.

A comprehensive examination of policy measures intended to help emerging markets contend with large and volatile capital flows. While always episodic in nature, capital flows to emerging market economies have been especially volatile since the global financial crisis. After peaking at $680 billion in 2007, flows to emerging markets turned negative at the onset of crisis in 2008, then rebounded only to recede again during the U.S. sovereign debt downgrade in 2011. Since then, flows have continued to swing wildly, leaving emerging market policy makers wondering whether they can put in place policies during the inflow phase that will soften the blow when flows subsequently recede. This book offers the first comprehensive treatment of policy measures intended to help emerging markets contend with large and volatile capital flows. The authors, all IMF experts, explain that, in the spirit of liberalization and deregulation in the 1980s and 1990s, many emerging market governments eliminated capital inflow controls along with outflow controls. By 2012, however, capital inflow controls were again acknowledged as legitimate policy tools. Focusing on the macroeconomic and financial-stability risks associated with capital flows, the authors combine theoretical and empirical analysis to consider the interaction between monetary, exchange rate, macroprudential, and capital control policies to mitigate these risks. They examine the effectiveness of various policy tools, discuss the practical considerations and multilateral implications of their use, and provide concrete policy advice for dealing with capital inflows.