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The New Economics of Capital Controls Imposed for Prudential Reasons+L4888

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Author Info

  • Anton Korinek

Abstract

This paper provides an introduction to the new economics of prudential capital controls in emerging economies. This literature is based on the notion that there are externalities associated with financial crises because individual market participants do not internalize their contribution to aggregate financial instability when they make their finacing decisions. As a result they impose externalities in the form of greater financial instability on each other, and the private financing decisions of individuals are distorted towards excessive risk-taking. We discuss how prudential capital controls can induce private agents to internalize these externalities and thereby increase macroeconomic stability and enhance welfare.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/298.

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Length: 38
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/298

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Keywords: Capital controls; Economic models; Exchange rate depreciation; Price adjustments; balance sheet effects; capital inflows; capital flows; domestic agents; short-term debt; long-term debt; repayments; capital mobility; currency debt; free capital flows; capital markets; capital inflow; international capital flows; cost of capital; currency crises; capital outflows; capital market; credit market; central bank; external financing; reserve accumulation; currency crisis; foreign currency debt; stock market; international capital; international borrowing; capital stock; capital outflow; credit market imperfections; global capital markets; capital market liberalization; external borrowing; reserve bank; domestic credit; excessive volatility; excessive debt; central banks; risk aversion; capital flow; external finance; debt contracts; exogenous shocks; private financing; excessive borrowing; currency risks; debt maturity; efficiency of capital; current exchange rate; debt burden; capital market development; hoarding; capital account policies; strong capital inflows; social loss; capital accounts; domestic borrowers; domestic investors;

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References

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Citations

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Cited by:
  1. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2013. "On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 101-112, 03.
  2. Honkapohja, Seppo, 2012. "The 1980s financial liberalization in the Nordic countries," Research Discussion Papers 36/2012, Bank of Finland.
  3. Bhattacharya, Rudrani & Patnaik, Ila & Pundit, Madhavi, 2013. "Emerging economy business cycles: Financial integration and terms of trade shocks," Working Papers 13/120, National Institute of Public Finance and Policy.
  4. Kristina Spantig, 2012. "International monetary policy spillovers in an asymmetric world monetary system - The United States and China," Global Financial Markets Working Paper Series 2012-33, Friedrich-Schiller-University Jena.
  5. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 439-464, September.

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