The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.
"Macroprudential policies are necessary to restore monetary policy independence for the nonâ€central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."
That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.
"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.
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