On the Desirability of Capital Controls

Jonathan Heathcote and Fabrizio Perri

No 523, Staff Report from Federal Reserve Bank of Minneapolis

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: Terms of trade; Capital controls; International risk sharing (search for similar items in EconPapers)
JEL-codes: F32 F41 F42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-01-15
New Economics Papers: this item is included in nep-dge, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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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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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:523

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