Capital controls policy: An intertemporal perspective

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Abstract

The Eitan Berglas School of Economics, Tel Aviv University, Tel Aviv 69978, Israel This paper studies capital controls policy from an intertemporal perspective. Using a small, open economy model with optimizing agents, it derives a policy rule which conforms real-world stylized facts and is sustainable in the long run. In particular, it explicitly models the constraints on the policy rule implied by the dynamics of the economy. Studying several prevalent policy experiments, it is demonstrated that significant real effects are generated by the interaction between controls policy and traditional policy tools. This happens as controls affect agents' intratemporal asset allocation and intertemporal consumption patterns. The use of controls enlarges the set of possible outcomes, generating some 'non-traditional' results. The analysis points to new tradeoffs and hence new dilemmas faced by a government that uses controls.

Original languageEnglish
Pages (from-to)219-245
Number of pages27
JournalJournal of Economic Dynamics and Control
Volume22
Issue number2
DOIs
StatePublished - Feb 1998

Keywords

  • Capital controls
  • Fiscal policy
  • Intertemporal optimization
  • Monetary policy

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