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Capital controls spillovers

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  • Nispi Landi, Valerio

Abstract

I set up a three-country business cycle model with one advanced (AE) and two emerging economies (EMEs) to analyze the spillover effects arising from capital controls. Following a push-factor shock from the AE, if one EME tightens capital controls, the other EME experiences an additional wave of foreign investments, which amplify the macroeconomic boom. The spillovers effects are welfare improving for the other EME, which can borrow at a lower interest rate. Moderate capital controls may be useful to EMEs to affect the interest rate at which they trade international bonds. Coordination among EMEs in setting capital controls delivers relatively small welfare gains compared with the Nash equilibrium.

Suggested Citation

  • Nispi Landi, Valerio, 2020. "Capital controls spillovers," Journal of International Money and Finance, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jimfin:v:109:y:2020:i:c:s0261560620301947
    DOI: 10.1016/j.jimonfin.2020.102238
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    1. Valerio Nispi Landi & Alessandro Schiavone, 2021. "The Effectiveness of Capital Controls," Open Economies Review, Springer, vol. 32(1), pages 183-211, February.

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    More about this item

    Keywords

    Capital controls; Open economy macroeconomics; International business cycles;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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