Is Optimal Capital-Control Policy Countercyclical In Open-Economy Models With Collateral Constraints?
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.
An earlier version of this paper circulated under the title “Revisiting Macroprudential Policy In Open- Economy Models With Financial Frictions.” We thank for comments and suggestions two anonymous referees, Pierre-Olivier Gourinchas, Pau Rabanal, Damiano Sandri, and participants at the Swiss National Bank/IMF conference on “Exchange Rates and External Adjustment,” held June 24-25, 2016 in Zurich. Yoon Joo Jo provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of