On the Desirability of Capital Controls

Jonathan Heathcote and Fabrizio Perri

No 11080, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a standard two-country international macro model, we ask whether imposing restrictions on international non contingent 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. We identify calibrations in which symmetric capital controls improve terms of trade insurance against country-specific shocks and thereby increase welfare for both countries.

Keywords: Capital controls; international risk sharing; Terms of trade (search for similar items in EconPapers)
JEL-codes: F32 F41 F42 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-dge, nep-mon and nep-opm
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Citations: View citations in EconPapers (34)

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Related works:
Journal Article: On the Desirability of Capital Controls (2016)
Working Paper: On the Desirability of Capital Controls (2016)
Working Paper: On the Desirability of Capital Controls (2016)
Working Paper: On the desirability of capital controls (2015)
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