Managing capital flows involves two important things. First, we need to make a judgment on how important the externalities are. And, second, we need to make an objective assessment of what combinations of policies may be used to minimize their impact.
2 And if we look at core inflation, the solid black line, which excludes food and energy prices, we see that it too starts to move higher in the mid-1960s and rises to very elevated levels during the 1970s, which strongly suggests that something more than the energy and food price shocks must have been at work.