Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective

Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci () and Eric Young

No IDB-WP-393, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: 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 tool kit (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, this paper shows that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls, as it can achieve unconstrained allocation.

JEL-codes: E52 F37 F41 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=37662164 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=37662164 [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=37662164)

Related works:
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)
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:idb:wpaper:idb-wp-393

Access Statistics for this paper

More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().