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On the Desirability of Capital Controls

Jonathan Heathcote () and Fabrizio Perri ()

IMF Economic Review, 2016, vol. 64, issue 1, 75-102

Abstract: In a standard two-country international macro model, the paper asks whether imposing restrictions on international noncontingent borrowing and lending is ever desirable. The answer is yes. If one country imposes capital controls unilaterally, it can generate favorable changes in the dynamics of equilibrium interest rates and the terms of trade, and thereby benefit at the expense of its trading partner. If both countries simultaneously impose capital controls, the welfare effects are ambiguous. The paper identifies calibrations in which symmetric capital controls improve terms-of-trade insurance against country-specific shocks and thereby increase welfare for both countries.

Date: 2016
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Working Paper: On the Desirability of Capital Controls (2016) Downloads
Working Paper: On the Desirability of Capital Controls (2016) Downloads
Working Paper: On the Desirability of Capital Controls (2016) Downloads
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