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The New Economics of Capital Controls Imposed for Prudential Reasons+L4888
Author:
Mr. Anton Korinek
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 298
Language:
English
Publication Date:
01 Dec 2011
DOI:
https://doi.org/10.5089/9781463927844.001
ISBN:
9781463927844
ISSN:
1018-5941
Pages:
38
Keywords:
WP; short-term debt; long-term debt; Pareto efficiency; financial crises; balance sheet effects; pecuniary externalities; capital controls; pecuniary externality; foreign currency; price movement; Exchange rates; Asset prices; Financial statements; Global
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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.
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This paper provides an introduction to the new economics of prudential capital controls in emerging economies. This literature is based on the notion that there are externalities associated with financial crises because individual market participants do not internalize their contribution to aggregate financial instability when they make their finacing decisions. As a result they impose externalities in the form of greater financial instability on each other, and the private financing decisions of individuals are distorted towards excessive risk-taking. We discuss how prudential capital controls can induce private agents to internalize these externalities and thereby increase macroeconomic stability and enhance welfare.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund