Other things being equal, this would signal a need for more exchange rate flexibility. However, other indicators of financial integration suggest that the progress made by emerging markets has been more limited. A prominent example is the sum of the outstanding stocks of foreign assets and foreign liabilities, expressed as a share of GDP.
Accordingly, I cannot fully uphold the separation principle, which reflects the view that time-varying macroprudential policy measures are by themselves effective. I believe we should leave open the possibility of responding to widening financial imbalances with fiscal policy, including tax policy, and monetary policy.