Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective
AbstractIn the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, we show that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls as it can achieve the unconstrained allocation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 641.
Date of creation: 2013
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Other versions of this item:
- Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric Young, 2013. "Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective," Research Department Publications IDB-WP-393, Inter-American Development Bank, Research Department.
- Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric R. Young, 2013. "Capital Controls or Real Exchange Rate Policy?: A Pecuniary Externality Perspective," IDB Publications 80682, Inter-American Development Bank.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-CBA-2013-12-29 (Central Banking)
- NEP-DGE-2013-12-29 (Dynamic General Equilibrium)
- NEP-MAC-2013-12-29 (Macroeconomics)
- NEP-MON-2013-12-29 (Monetary Economics)
- NEP-OPM-2013-12-29 (Open Economy Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bianchi, Javier, 2009.
"Overborrowing and Systemic Externalities in the Business Cycle,"
16270, University Library of Munich, Germany.
- Javier Bianchi, 2011. "Overborrowing and Systemic Externalities in the Business Cycle," American Economic Review, American Economic Association, vol. 101(7), pages 3400-3426, December.
- Javier Bianchi, 2009. "Overborrowing and systemic externalities in the business cycle," Working Paper 2009-24, Federal Reserve Bank of Atlanta.
- Javier Bianchi, 2010. "Overborrowing and Systemic Externalities in the Business Cycle," 2010 Meeting Papers 96, Society for Economic Dynamics.
- Bianchi, Javier, 2009. "Overborrowing and Systemic Externalities in the Business Cycle," MPRA Paper 15114, University Library of Munich, Germany.
- De Paoli, Bianca & Lipinska, Anna, 2012.
"Capital controls: a normative analysis,"
Federal Reserve Bank of San Francisco, issue Nov, pages 1-36.
- Benigno, Gianluca & Fornaro, Luca, 2013.
"The Financial Resource Curse,"
CEPR Discussion Papers
9489, C.E.P.R. Discussion Papers.
- Gianluca Benigno & Luca Fornaro, 2013. "The financial resource curse," LSE Research Online Documents on Economics 51557, London School of Economics and Political Science, LSE Library.
- Gianluca Benigno & Luca Fornaro, 2013. "The Financial Resource Curse," CEP Discussion Papers dp1217, Centre for Economic Performance, LSE.
- Anton Korinek, 2011. "The New Economics of Prudential Capital Controls: A Research Agenda," IMF Economic Review, Palgrave Macmillan, vol. 59(3), pages 523-561, August.
- Fabio Braggion & Lawrence J. Christiano & Jorge Roldos, 2007.
"Optimal Monetary Policy in a 'Sudden Stop',"
NBER Working Papers
13254, National Bureau of Economic Research, Inc.
- Jonathan David Ostry & Atish R. Ghosh & Anton Korinek, 2012. "Multilateral Aspects of Managing the Capital Account," IMF Staff Discussion Notes 12/10, International Monetary Fund.
- Timothy J. Kehoe & David K. Levine, 1992.
"Debt constrained asset markets,"
445, Federal Reserve Bank of Minneapolis.
- Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
- Nicolas E. Magud E. & Carmen M. & Kenneth S. Rogoff, 2011.
"Capital Controls: Myth and Reality--A Portfolio Balance Approach,"
Working Paper Series
WP11-7, Peterson Institute for International Economics.
- Nicolas E. Magud & Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality - A Portfolio Balance Approach," NBER Working Papers 16805, National Bureau of Economic Research, Inc.
- Javier Bianchi & Enrique G. Mendoza, 2010.
"Overborrowing, Financial Crises and 'Macro-prudential' Taxes,"
NBER Working Papers
16091, National Bureau of Economic Research, Inc.
- Enrique Mendoza & Javier Bianchi, 2010. "Overborrowing, financial crises and ‘macro-prudential’ taxes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
- Bruce Ian Carlin & Shaun William Davies & Andrew Miles Iannaccone, 2010. "Competing for Attention in Financial Markets," NBER Working Papers 16085, National Bureau of Economic Research, Inc.
- Ricardo J Caballero, 2010. "Sudden Financial Arrest," IMF Economic Review, Palgrave Macmillan, vol. 58(1), pages 6-36, August.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Exchange rate commitment always beats capital controls
by Economic Logician in Economic Logic on 2014-01-24 15:08:00
- Timothy J. Kehoe & Kim J. Ruhl & Joseph B. Steinberg, 2013. "What will happen when foreigners stop lending to the United States?," Economic Policy Paper 13-4, Federal Reserve Bank of Minneapolis.
- Davis, Scott & Presno, Ignacio, 2014. "Capital controls as an instrument of monetary policy," Globalization and Monetary Policy Institute Working Paper 171, Federal Reserve Bank of Dallas.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.