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IMF Economic Review

, Volume 64, Issue 1, pp 75–102 | Cite as

On the Desirability of Capital Controls

  • Jonathan Heathcote
  • Fabrizio Perri
Article

Abstract

In a standard two-country international macro model, the paper asks whether imposing restrictions on international noncontingent borrowing and lending is ever desirable. The answer is yes. If one country imposes capital controls unilaterally, it can generate favorable changes in the dynamics of equilibrium interest rates and the terms of trade, and thereby benefit at the expense of its trading partner. If both countries simultaneously impose capital controls, the welfare effects are ambiguous. The paper identifies calibrations in which symmetric capital controls improve terms-of-trade insurance against country-specific shocks and thereby increase welfare for both countries.

JEL Classifications

F32 F41 F42 

Supplementary material

41308_2016_BFimfer20167_MOESM1_ESM.zip (15 kb)
Supplementary material, approximately 15 KB.

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Copyright information

© International Monetary Fund 2016

Authors and Affiliations

  • Jonathan Heathcote
  • Fabrizio Perri

There are no affiliations available

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