Financial market incompleteness and international cooperation on capital controls

Shigeto Kitano and Kenya Takaku

International Journal of Economic Theory, 2022, vol. 18, issue 4, 624-642

Abstract: We examine how the degree of financial market incompleteness affects welfare gains from international cooperation on capital controls. When financial markets are incomplete, international risk sharing is disturbed. However, the optimal global policy significantly reverses the welfare deterioration due to inefficient risk sharing. We show that when financial markets are more incomplete, the welfare gap between the optimal global policy and the Nash equilibrium increases, and the welfare gains from international cooperation on capital controls then become larger.

Date: 2022
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https://doi.org/10.1111/ijet.12331

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Working Paper: Financial Market Incompleteness and International Cooperation on Capital Controls (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:18:y:2022:i:4:p:624-642

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