Cross-border capital flows source of financial fragility: Raghuram Rajan
In his 'Mundell-Fleming Lecture' at the International Monetary Fund headquarters Rajan argued that even if countries at either end of the flows follow reasonable policies, the nature of the expansion in liquidity in the up-cycle may, by increasing leverage and reducing pledgeability, set the stage for a costly downturn.
Rather than blaming each other, countries should see how best they can benefit from cross-border flows, without incurring the costs, said the top world economist.
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