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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.

Suggested Citation

  • 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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    Citations

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    Cited by:

    1. 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.
    2. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls, Macroprudential Regulation,and the Bank Balance Sheet Channel," Discussion Paper Series DP2017-18, Research Institute for Economics & Business Administration, Kobe University, revised Jun 2018.
    3. repec:kap:openec:v:28:y:2017:i:4:d:10.1007_s11079-017-9441-4 is not listed on IDEAS
    4. repec:bpj:bejmac:v:18:y:2018:i:1:p:19:n:12 is not listed on IDEAS
    5. 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.
    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.

    More about this item

    Keywords

    Capital controls; Welfare; DSGE; Small open economy;

    JEL classification:

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

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