NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is Optimal Capital-Control Policy Countercyclical In Open-Economy Models With Collateral Constraints?

Stephanie Schmitt-Grohé, Martín Uribe

NBER Working Paper No. 22481
Issued in August 2016, Revised in June 2017
NBER Program(s):EFG, IFM

This paper contributes to a literature that studies optimal capital control policy in open economy models with pecuniary externalities due to flow collateral constraints. It shows that the optimal policy calls for capital controls to be lowered during booms and to be increased during recessions. These findings are at odds with the conventional view that capital controls should be tightened during expansions to curb capital inflows and relaxed during contractions to discourage capital flight.

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Document Object Identifier (DOI): 10.3386/w22481

Published: Stephanie Schmitt-Grohé & Martín Uribe, 2017. "Is Optimal Capital Control Policy Countercyclical in Open Economy Models with Collateral Constraints?," IMF Economic Review, vol 65(3), pages 498-527.

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