Capital controls as a credit policy tool in a small open economy
-
Shigeto Kitano
and
Kenya Takaku
Abstract
We develop a sticky price, small open economy model with financial frictions à la [Gertler, Mark, and Peter Karadi. 2011. “A Model of Unconventional Monetary Policy.” Journal of Monetary Economics 58 (1): 17–34.], in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.
Acknowledgement
An earlier version of the paper was circulated under the title “Capital Controls as an Alternative to Credit Policy in a Small Open Economy.” Earlier versions of the paper were presented at International Conference on Economic Integration and Economic Growth at the University of Washington, RoMacS seminar at Okayama University, and the Japan Society of Monetary Economics annual meeting at Kansai University. We are grateful to Masahiro Inoguchi and the participants for comments. We are especially grateful to two anonymous referees for their constructive comments that considerably improved this paper. This work was supported by JSPS KAKENHI Grant Number (15H05729, 16K03741).
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Articles in the same Issue
- Advances
- Luxury consumption, precautionary savings and wealth inequality
- Unemployment insurance with limited commitment wage contracts and savings
- The marriage unemployment gap
- Fertility and labor supply of the old with pay-as-you-go pension and child allowances
- Optimal pensions in aging economies
- Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market
- An empirical note on the long-run relationship between education and religiosity in Christian countries
- Accounting for changing returns to experience
- Development accounting with intermediate goods
- The post-crisis slump in Europe: a business cycle accounting analysis
- Rational bubbles in a monetary economy
- Capital controls as a credit policy tool in a small open economy
- Labor income share and imperfectly competitive product market
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- Contributions
- Comparing the effects of discretionary tax changes between the US and the UK
- Erratum
- Erratum to: Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
Articles in the same Issue
- Advances
- Luxury consumption, precautionary savings and wealth inequality
- Unemployment insurance with limited commitment wage contracts and savings
- The marriage unemployment gap
- Fertility and labor supply of the old with pay-as-you-go pension and child allowances
- Optimal pensions in aging economies
- Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market
- An empirical note on the long-run relationship between education and religiosity in Christian countries
- Accounting for changing returns to experience
- Development accounting with intermediate goods
- The post-crisis slump in Europe: a business cycle accounting analysis
- Rational bubbles in a monetary economy
- Capital controls as a credit policy tool in a small open economy
- Labor income share and imperfectly competitive product market
- Macroeconomic costs of gender gaps in a model with entrepreneurship and household production
- Contributions
- Comparing the effects of discretionary tax changes between the US and the UK
- Erratum
- Erratum to: Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
