Optimal Monetary Policy and Capital Account Restrictions in a Small Open Economy

Zheng Liu and Mark Spiegel

IMF Economic Review, 2015, vol. 63, issue 2, 298-324

Abstract: Declines in interest rates in advanced economies during the global financial crisis resulted in surges in capital flows to emerging market economies and triggered advocacy of capital control policies. The paper evaluates the effectiveness for macroeconomic stabilization and the welfare implications of the use of capital account policies in a monetary DSGE model of a small open economy. The model features incomplete markets, imperfect asset substitutability, and nominal rigidities. In this environment, policymakers can respond to fluctuations in capital flows through capital account policies such as sterilized interventions and taxing capital inflows, in addition to conventional monetary policy. The welfare analysis suggests that optimal sterilization and capital controls are complementary policies.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://www.palgrave-journals.com/imfer/journal/v63/n2/pdf/imfer20158a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/imfer/journal/v63/n2/full/imfer20158a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Optimal Monetary Policy and Capital Account Restrictions in a Small Open Economy (2013)
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:pal:imfecr:v:63:y:2015:i:2:p:298-324

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().