Capital controls as a credit policy tool in a small open economy

Shigeto Kitano and Takaku Kenya ()
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Takaku Kenya: Faculty of International Studies, Hiroshima City University, Asa-Minami-Ku, Hiroshima 731-3194, Japan

The B.E. Journal of Macroeconomics, 2018, vol. 18, issue 1, 19

Abstract: We develop a sticky price, small open economy model with financial frictions à la [Gertler, Mark, and Peter Karadi. 2011. “A Model of Unconventional Monetary Policy.” Journal of Monetary Economics 58 (1): 17–34.], in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.

Keywords: balance sheets; capital control; credit policy; crisis; DSGE; financial frictions; financial intermediaries; New Keynesian; nominal rigidities; small open economy (search for similar items in EconPapers)
JEL-codes: E44 E58 F32 F38 F41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Working Paper: Capital Controls as a Credit Policy Tool in a Small Open Economy (2017)
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DOI: 10.1515/bejm-2016-0231

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