Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective
Eric Young (),
Alessandro Rebucci () and
Christopher Otrok ()
No 641, 2013 Meeting Papers from Society for Economic Dynamics
In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, we show that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls as it can achieve the unconstrained allocation.
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Working Paper: Capital Controls or Real Exchange Rate Policy?: A Pecuniary Externality Perspective (2013)
Working Paper: Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective (2013)
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