Policy makers in emerging markets are increasingly preoccupied by the effect of global capital flows on the stability of their economy. Over the last decade, emerging markets have been battered by huge waves of capital inflows and outflows, seemingly unable to exert any control on their own economy. Commentators often argue that once a small economy opens to international financial market its policy is dictated by global factors at the expense of internal objectives. There is a large literature analysing the issue but few formal analysis that capture the link between global factors, capital flows and local economic conditions. Kavli and Viegi (2015) in the paper titled “Portfolio Flows in a two-country DSGE model with financial intermediaries” present a model to illustrate the effect of global capital flows on a small emerging economy and to help identifying the policy options available to an emerging market policy maker.