A new article is out @ VoxEU on the effects of capital inflows, exchange rate flexibility, and financial crisis.

The authors find that large capital inflows without flexible exchange rates to adjust leads to credit expansion and eventually bubbles. This played a major role in China/US with China pegging its currency to the USD and the Eurozone where they share the common currency and trade surpluses in Germany and the like are disruptive to the deficit countries such as Greece.

http://www.voxeu.org/index.php?q=node/7555

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