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Capital controls and welfare

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  • Kitano, Shigeto

Abstract

This paper computes welfare levels under different degree of capital controls and compares them with the welfare level under perfect capital mobility by using the methodology of Schmitt-Grohé and Uribe (2007). We show that perfect capital mobility is not always optimal and that capital controls may enhance an economy’s welfare level. There exists an optimal degree of capital-account restriction that achieves a higher level of welfare than that under perfect capital mobility, if the economy has costly financial intermediaries. The results of our analysis imply that as the domestic financial intermediaries are less efficient, the government should impose stricter capital controls in the form of a tax on foreign borrowing.

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  • Kitano, Shigeto, 2011. "Capital controls and welfare," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 700-710.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:700-710
    DOI: 10.1016/j.jmacro.2011.07.004
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Capital controls and welfare
      by Christian Zimmermann in NEP-DGE blog on 2010-02-02 04:05:30

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    Cited by:

    1. Kitano Shigeto & Takaku Kenya, 2018. "Capital controls as a credit policy tool in a small open economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.
    2. Kitano, Shigeto & Takaku, Kenya, 2020. "Capital controls, macroprudential regulation, and the bank balance sheet channel," Journal of Macroeconomics, Elsevier, vol. 63(C).
    3. Shigeto Kitano & Kenya Takaku, 2016. "External Debt and Taylor Rules in a Small Open Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(5), pages 541-559, December.
    4. Agénor, Pierre-Richard & Jia, Pengfei, 2020. "Capital controls and welfare with cross-border bank capital flows," Journal of Macroeconomics, Elsevier, vol. 65(C).
    5. Choi, Jae Hoon, 2020. "Capital controls and foreign exchange market intervention," Journal of International Money and Finance, Elsevier, vol. 101(C).
    6. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls and Financial Frictions in a Small Open Economy," Open Economies Review, Springer, vol. 28(4), pages 761-793, September.
    7. Shigeto Kitano & Kenya Takaku, 2018. "Capital Controls, Monetary Policy, And Balance Sheets In A Small Open Economy," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 859-874, April.

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    More about this item

    Keywords

    Capital controls; Welfare; DSGE; Small open economy;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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