Capital Controls or Real Exchange Rate Policy?: A Pecuniary Externality Perspective
In 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 tool kit (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, this paper shows that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls, as it can achieve unconstrained allocation.
Saved in:
Main Author: | Inter-American Development Bank |
---|---|
Other Authors: | Gianluca Benigno |
Format: | Working Papers biblioteca |
Language: | English |
Published: |
Inter-American Development Bank
|
Subjects: | Financial Sector, E52 - Monetary Policy, F37 - International Finance Forecasting and Simulation: Models and Applications, F41 - Open Economy Macroeconomics, IDB-WP-393, |
Online Access: | http://dx.doi.org/10.18235/0011453 https://publications.iadb.org/en/capital-controls-or-real-exchange-rate-policy-pecuniary-externality-perspective |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Similar Items
-
Revisiting Overborrowing and Its Policy Implications
by: Inter-American Development Bank -
Financial Crises and Macro-Prudential Policies
by: Inter-American Development Bank -
Optimal Policy for Macro-Financial Stability
by: Inter-American Development Bank -
Is Inflation Targeting Still on Target?: The Recent Experience of Latin America
by: Inter-American Development Bank -
Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules
by: Inter-American Development Bank