This would fully cancel out the positive impact of domestic reforms in EMEs over the past two decades: the shift left in the distribution when there is a push shock (grey distribution, Chart 16) is likely to be at least as great as the shift right that we have seen over the past two decades because of improvements in pull factors. While these calculations should be taken with a grain of salt, they suggest that in a new world order that combines growing market-based finance with a deepening asymmetry at the heart of the international monetary financial system, fast reforming EMEs could be running to stand still in their quest for higher sustainable capital flows. Chart 16: Emerging market economies could be running to stand still in the future Average 2009-18 Average 1996-06 Probability density Impact of push factors Impact of push factors with 2030 amplification due to shifting composition (col 3, chart 15) 0.12 0.10 0.08 0.06 0.04 0.02 0.00 -8 -6 -4 -2 Capital flows as a % of GDP  0  2  4  6  8  10  12  14  16  18  Sources: IMF, EPFR, IIF and Bank staff calculations. Notes: The green and red distributions in this chart are the same as in Chart 11. The dotted grey distribution results from increasing the sensitivity of the distribution to push shocks in line with the scalar in the third column of chart 15, assuming they apply through the distribution (rather than only to 5th percentile).
by Martin Feldstein, Chicago: University of Chicago Press. 7 Rose (2007), A stable international monetary system emerges: Inflation targeting is Bretton Woods, reversed, Journal of International Money and Finance, Elsevier, vol. 26(5), pages 663-681, September. 8 See Chapter 3 of the October 2018 IMF World Economic Outlook. 9 Cesa-Bianchi et al (2015), Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies, Journal of Money, Credit and Banking, show that for AEs flexible exchange rates dampen the impact of push shocks, whereas for EMs they can amplify the impact of push shocks via a collateral valuation effect 10 See Chapter 2, IMF April 2016 World Economic Outlook. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6    An effective macroprudential policy toolkit to curtail the damaging extremes of domestic financial cycles. Macroprudential policy can guard against rapid credit growth, which is amongst the best early warning indicators of an impending downturn. 11 And higher domestic bank capital ratios reduce the sensitivity of capital inflows to changes in global volatility.12    And deep domestic capital markets to reduce the reliance on foreign investors and the need to issue in foreign currency, which dampens capital flow volatility (Chart 6).