Affiliation:
1. Research Department, Federal Reserve Bank of Dallas (email: )
2. Vancouver School of Economics, University of British Columbia (email: )
Abstract
Capital controls may be justified as a policy to combat a financial crisis. But for large economies, capital controls may have substantial spillovers to the rest of the world. We investigate the case for capital controls in a large open economy, when domestic financial constraints may bind during a crisis. When the crisis country is indebted, it must trade off the desire to tax inflows to improve the terms of trade and tax outflows to ease financial constraints. This trade-off renders noncooperative use of capital controls ineffective as crisis management policy. Effective use of capital controls for crisis management requires international cooperation. (JEL F23, F38, F41, G01, H21, H25)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
1 articles.
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