scholarly journals Capital Controls: A Survey of the New Literature

2020 ◽  
Author(s):  
Alessandro Rebucci ◽  
Chang Ma
Keyword(s):  
Open Economy ◽  
Global Financial Crisis ◽  
Aggregate Demand ◽  
Control Policy ◽  
Capital Controls ◽  
Terms Of Trade ◽  
New Keynesian ◽  
Clear Cut ◽  
Macroprudential Policies ◽  
New Keynesian Models

This paper reviews selected post–Global Financial Crisis theoretical and empirical contributions on capital controls and identifies three theoretical motives for the use of capital controls: pecuniary externalities in models of financial crises, aggregate demand externalities in New Keynesian models of the business cycle, and terms of trade manipulation in open-economy models with pricing power. Pecuniary and demand externalities offer the most compelling case for the adoption of capital controls, but macroprudential policy can also address the same distortions. So capital controls generally are not the only instrument that can do the job. If evaluated through the lenses of the new theories, the empirical evidence reviewed suggests that capital controls can have the intended effects, even though the extant literature is inconclusive as to whether the effects documented amount to a net gain or loss in welfare terms. Terms of trade manipulation also provides a clear-cut theoretical case for the use of capital controls, but this motive is less compelling because of the spillover and coordination issues inherent in the use of control on capital flows for this purpose. Perhaps not surprisingly, only a handful of countries have used capital controls in a countercyclical manner, while many adopted macroprudential policies. This suggests that capital control policy might entail additional costs other than increased financing costs, such as signaling the bad quality of future policies, leakages, and spillovers.

scholarly journals Post-2008 Brazilian fiscal policy: an interpretation through the analysis of fiscal multipliers

2017 ◽  
Vol 47 (1) ◽  
pp. 93-124
Author(s):  
Celso José Costa Junior ◽  
Alejandro C. García Cintado ◽  
Armando Vaz Sampaio
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Investment ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
New Keynesian ◽  
Fiscal Policies ◽  
Fiscal Multipliers ◽  
Brazilian Government ◽  
The Government

Abstract The global crisis that erupted in 2007 led many countries to embark on countercyclical fiscal policies as a way to cushion the blow of a depressed aggregate demand. Advocates of discretionary measures emphasize that fiscal policy can indeed stimulate the economy. The main goal of this work is to assess whether the fiscal policies pursued by the Brazilian government in the aftermath of the 2008 crisis, succeeded in bringing the economy back on track in a sustainable fashion. To this end, the fiscal multipliers of five different shocks are studied in a small open-economy New Keynesian framework. Our results point to the government spending and public investment as the most effective fiscal tools for combating the crisis. However, the highest fiscal multiplier turned out to be the one associated with excise tax reductions.

scholarly journals AN ANALYTICAL AND NUMERICAL SEARCH FOR BIFURCATIONS IN OPEN ECONOMY NEW KEYNESIAN MODELS

2014 ◽  
Vol 20 (2) ◽  
pp. 482-503 ◽  
Author(s):  
William A. Barnett ◽  
Unal Eryilmaz
Keyword(s):  
Open Economy ◽  
Complex Dynamics ◽  
Policy Design ◽  
Confidence Region ◽  
Confidence Regions ◽  
New Keynesian ◽  
Keynesian Model ◽  
Bifurcation Phenomena ◽  
New Keynesian Models ◽  
Policy Risk

We explore bifurcation phenomena in the open-economy New Keynesian model developed by Galí and Monacelli in 2005. We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research.

scholarly journals Facing the Global Financial Cycle

2021 ◽  
Vol 21 (34) ◽  
Author(s):  
Nicoletta Batini ◽  
Luigi Durand
Keyword(s):  
Capital Flows ◽  
Global Financial Crisis ◽  
Capital Controls ◽  
Large Degree ◽  
Flow Management ◽  
Policy Choices ◽  
Macroprudential Policies ◽  
Global Factor ◽  
Financial Conditions ◽  
Cross Country

Abstract In this paper we ask whether countries can influence their exposure to changes in global financial conditions. Specifically, we show that even though we can model cross-country capital flows via a global factor that closely tracks changes in global financial conditions, there is a large degree of heterogeneity in the sensitivity of each country to this same global factor. We then evaluate whether this cross-country heterogeneity can be attributed to different policy choices, including measures of capital flow management, such as capital controls and macroprudential policies. In our main results, we show that higher levels of capital controls and macroprudential policies both dampen the sensitivity to the global factor. Furthermore, we show that countries’ monetary and exchange rate policies can also be successfully deployed. Overall, our results have implications that extend beyond the surge that preceded the 2008 global financial crisis, and that closely resonate in light of the financial disruptions that followed the COVID-19 pandemic.

Capital Controls for Crisis Management Policy in a Global Economy

2022 ◽  
Vol 14 (1) ◽  
pp. 60-82
Author(s):  
J. Scott Davis ◽  
Michael B. Devereux
Keyword(s):  
Crisis Management ◽  
Open Economy ◽  
Global Economy ◽  
Financial Constraints ◽  
Capital Controls ◽  
Terms Of Trade ◽  
Management Policy ◽  
Trade Off ◽  
The World ◽  
Effective Use

Capital controls may be justified as a policy to combat a financial crisis. But for large economies, capital controls may have substantial spillovers to the rest of the world. We investigate the case for capital controls in a large open economy, when domestic financial constraints may bind during a crisis. When the crisis country is indebted, it must trade off the desire to tax inflows to improve the terms of trade and tax outflows to ease financial constraints. This trade-off renders noncooperative use of capital controls ineffective as crisis management policy. Effective use of capital controls for crisis management requires international cooperation. (JEL F23, F38, F41, G01, H21, H25)

MANAGING CAPITAL FLOWS IN INTERMEDIATE REGIMES: THE CASE OF INDIA

2011 ◽  
Vol 02 (02) ◽  
pp. 351-371 ◽  
Author(s):  
RENU KOHLI
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Global Financial Crisis ◽  
Capital Controls ◽  
Capital Inflows ◽  
Relevant Evidence ◽  
Account Management ◽  
Key Policy ◽  
Policy Challenge ◽  
The Global Financial Crisis

Managing capital flows is the key policy challenge for emerging economies like India in the aftermath of the crisis. In contrast to other emerging markets who are levying capital controls, India's macro-monetary framework is distinguished by significant restrictions that help manage inflows. Against this context, the paper characterises India's capital account management strategy through illustrating the 2006–2007 episode of capital inflows in the buildup to the global financial crisis. It shows how these restrictions allowed the authorities to straddle the open-economy trilemma and balance the exchange rate and price stability objectives. It offers relevant evidence on the effectiveness of India's capital controls in retaining monetary autonomy.

Economic effects of monetary policy in Russia: What do large datasets tell us?

2020 ◽  
pp. 31-53 ◽  
Author(s):  
Anna A. Pestova ◽  
Natalia A. Rostova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Activity ◽  
Global Financial Crisis ◽  
Exchange Rate Regime ◽  
Aggregate Demand ◽  
Economic Effects ◽  
Theoretical Concepts ◽  
Empirical Estimates

Is the Bank of Russia able to control inflation and, at the same time, manage aggregate demand using its interest rate instruments? In other words, are empirical estimates of the effects of monetary policy in Russia consistent with the theoretical concepts and experience of advanced economies? This paper is aimed at addressing these issues. Unlike previous research, we employ “big data” — a large dataset of macroeconomic and financial data — to estimate the effects of monetary policy in Russia. We focus exclusively on the period after the 2008—2009 global financial crisis when the Bank of Russia announced the abandoning of its fixed ruble exchange rate regime and started to gradually transit to an interest rate management. Our estimation results do not confirm standard responses of key economic activity and price variables to tightening of monetary policy. Specifically, our estimates do not reveal a statistically significant restraining effect of the Bank of Russia’s policy of high interest rates on inflation in recent years. At the same time, we find a significant deteriorating effect of the monetary tightening on economic activity indicators: according to our conservative estimates, each of the key rate increases occurred in March and December 2014 had led to a decrease in the industrial production index by about 0.2 percentage points within a year.

Macroprudential Policy - Taxonomy and Challenges

2011 ◽  
Vol 216 ◽  
pp. R1-R15 ◽  
Author(s):  
Erland W. Nier
Keyword(s):  
Financial Crisis ◽  
Financial Regulation ◽  
Global Financial Crisis ◽  
Policy Framework ◽  
Macroprudential Policy ◽  
Macroprudential Policies ◽  
The Global Financial Crisis ◽  
Governance Arrangements ◽  
Country Specific

There is increasing recognition that prior to the global financial crisis financial regulation had lacked a macroprudential perspective. There has since been a strong effort to make a new macroprudential orientation operational, including through the establishment of new macroprudential authorities or ‘committees’ in a number of jurisdictions. These developments raise — and this paper explores — the following three questions. First, what distinguishes macroprudential policy from microprudential policy and what are its key tasks? Second, what powers should be given to macroprudential authorities and what should be their mandate? Third, how can governance arrangements ensure that macroprudential policies are pursued effectively? While arrangements for macroprudential policy will to some extent be country-specific, we identify three basic challenges in setting up an effective macroprudential policy framework and discuss options to address them.

scholarly journals Demand and Defective Growth Patterns: The Role of The Tradable and Non-Tradable Sectors in an Open Economy

2014 ◽  
Vol 104 (5) ◽  
pp. 272-277 ◽  
Author(s):  
Sandile Hlatshwayo ◽  
Michael Spence
Keyword(s):  
Open Economy ◽  
Aggregate Demand ◽  
Value Added ◽  
Growth Patterns ◽  
Structural Elements ◽  
Total Income ◽  
Us Economy ◽  
The Us ◽  
Tradable Sector

This paper examines the underlying structural elements of US growth patterns, pre- and post-crisis. Prior to the recession, the US economy exhibited a defective growth pattern driven by outsized domestic demand. As domestic aggregate demand retreats to more sustainable levels relative to total income, the tradable side of the economy is a catalyst for restoring strong growth. A structural rebalancing is already underway; although it is only a third of the economy, the tradable sector generated more than half of gross gains in value-added since the start of the recovery. However, distributional issues loom on the horizon.

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