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Capital controls as a credit policy tool in a small open economy

Author

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  • Kitano Shigeto

    (RIEB, Kobe University, 2-1, Rokkodai, Nada, Kobe 657-8501, Japan)

  • Takaku Kenya

    (Faculty of International Studies, Hiroshima City University, Asa-Minami-Ku, Hiroshima 731-3194, Japan)

Abstract

We develop a sticky price, small open economy model with financial frictions à la [Gertler, Mark, and Peter Karadi. 2011. “A Model of Unconventional Monetary Policy.” Journal of Monetary Economics 58 (1): 17–34.], in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.

Suggested Citation

  • 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.
  • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:1:p:19:n:12
    DOI: 10.1515/bejm-2016-0231
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    References listed on IDEAS

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    Cited by:

    1. Kitano, Shigeto & Takaku, Kenya, 2020. "Capital controls, macroprudential regulation, and the bank balance sheet channel," Journal of Macroeconomics, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    balance sheets; capital control; credit policy; crisis; DSGE; financial frictions; financial intermediaries; New Keynesian; nominal rigidities; small open economy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • 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

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