Cover IMF Working Papers
The Macroeconomic Effects of Capital Controls and the Stabilization of the Balance of Trade
Author: Mr. Enrique G. Mendoza
Series:
IMF Working Papers
Volume/Issue:
Volume 1990: Issue 109
Language:
English
Publication Date:
01 Nov 1990
DOI:
https://doi.org/10.5089/9781451946055.001
ISBN:
9781451946055
ISSN:
1018-5941
Pages:
54
Keywords:
WP; balance of trade; trade surplus; capital stock; trade-balance improvement; free-trade economy; trade-balance target; benchmark economy; trade-balance-output ratio; utility function; Trade balance; Capital controls; Consumption; Foreign assets; Trade liberalization
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (2.4 MB) Download Epub
A dynamic stochastic equilibrium model of a small open economy is used to quantify the macroeconomic effects of introducing capital controls to stabilize the balance of trade. This model focuses on the role of international trade and foreign debt as instruments that help smooth consumption in response to productivity or terms-of-trade disturbances. The model rationalizes some key empirical regularities that characterize business fluctuations and the dynamics of savings and investment in post-war Canada. The results show that capital controls have small effects on both the basic characteristics of macroeconomic fluctuations and the level of welfare. A fiscal strategy that successfully enforces capital controls by introducing taxes on foreign interest income is also studied in some detail.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund