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The Potential Welfare Benefit of Capital Controls: the Case of Korea

Author

Listed:
  • Shigeto Kitano

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Yoichi Matsubayashi

    (Graduate School of Economics, Kobe University Cardiff University, UK)

Abstract

This paper develops a stochastic growth model of a small open economy augmented with banks. We estimate the model by using Bayesian methods and examine how capital controls affect the economy's welfare. The results of our our analysis show that there exits an optimal degree of capital controls that achieves a higher level of welfare than that of under perfect capital mobility as a second best policy, and the welfare effect in the case of Korea is not negligible.

Suggested Citation

  • Shigeto Kitano & Yoichi Matsubayashi, 2013. "The Potential Welfare Benefit of Capital Controls: the Case of Korea," Discussion Paper Series DP2013-09, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2013-09
    as

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