Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88992
Authors: 
Benigno, Gianluca
Chen, Huigang
Otrok, Christopher
Rebucci, Alessandro
Young, Eric
Year of Publication: 
2013
Series/Report no.: 
IDB Working Paper Series IDB-WP-393
Abstract: 
In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy tool kit (so called macro- prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, this paper shows that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls, as it can achieve unconstrained allocation.
JEL: 
E52
F37
F41
Document Type: 
Working Paper

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