By Jonathan Ostry of the IMF

It did not take long after the announcement by the Federal Reserve to engage in a third round of quantitative easing – action warranted by continued economic weakness – for emerging market countries to react. Brazil led the charge, denouncing the action as “protectionist” and predicting that it would reignite “currency wars.” Perhaps less expected than Brazil’s comments were those of Korea’s central bank, which expressed worry that the resulting inflows were “expected to lead to huge difficulty in managing capital inflows.” On the other hand, not all emerging market countries seem unhappy about inflows. India, for example, liberalized its capital inflows regime in the wake of the Fed’s action, in sharp contrast to Brazil’s threat to exercise its option to tighten capital controls if the challenges of managing inflows became too great. Continue reading »