Capital Controls or Real Exchange Rate Policy?: A Pecuniary Externality PerspectiveGianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci () and Eric Young No 4246, IDB Publications (Working Papers) from Inter-American Development Bank 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. Keywords: IDB-WP-393 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:4246 Access Statistics for this paper More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC. |
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