A Comparison between Optimal Capital Controls under Fixed Exchange Rates and Optimal Monetary Policy under Flexible Rates

Shigeto Kitano and Kenya Takaku
Additional contact information
Kenya Takaku: Faculty of Business, Aichi Shukutoku University

No DP2014-25, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We apply a Ramsey-type analysis to a standard sticky price, small open economy model, examining the welfare implications of optimal capital controls under fixed exchange rates and optimal monetary policy under flexible exchange rates. We show that capital controls can significantly reduce the gap between the welfare levels under fixed and flexible exchange rates.

Keywords: Optimal capital controls; Optimal monetary policy; Ramsey policy; Exchange rate regimes; Small open economy; Sticky prices; Welfare comparison; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E5 F4 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2014-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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