Flow specific capital controls for emerging markets

Chris Garbers () and Guangling Liu ()
Additional contact information
Chris Garbers: Department of Economics, University of Stellenbosch
Guangling Liu: Department of Economics, University of Stellenbosch

No 12/2017, Working Papers from Stellenbosch University, Department of Economics

Abstract: This paper investigates the impact of capital controls on business cycle fluctuations and welfare. To perform this analysis, we deploy an asymmetric two country model that is subject to negative foreign interest rate shocks. The results show that both an inflow and outflow capital control are able to attenuate capital flow dynamics, but each control bears different implications for macroeconomic outcomes. Whilst the outflow capital control is associated with shock attenuation benefits, the inflow capital control is shown to amplify the impact of shocks. Easier capital control regimes enhance the attenuation and amplification properties associated with each capital control, whilst strict regimes do the opposite. Lastly, the analysis shows that the welfare effects of capital controls are agent dependent, and that society prefers the outflow capital control to the inflow capital control. Taken together, these results are indicative of the comparative desirability of capital controls imposed on the financial sector (outflows) as compared to the real sector (inflows).

Keywords: Capital controls; Welfare; Wealth; Real business cycle; Financial intermediation; DSGE (search for similar items in EconPapers)
JEL-codes: E21 E32 E43 E44 E51 E52 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ekon.sun.ac.za/wpapers/2017/wp122017/wp122017.pdf First version, 2017 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sza:wpaper:wpapers288

Access Statistics for this paper

More papers in Working Papers from Stellenbosch University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Melt van Schoor ().