Capital Flows, Beliefs, and Capital Controls
| dc.creator | Rarytska, Olena | |
| dc.creator | Tsyrennikov, Viktor | |
| dc.date | 2017-04-01T19:56:01Z | |
| dc.date.accessioned | 2026-07-09T11:02:42Z | |
| dc.description | Belief heterogeneity generates speculative cross-border capital flows that are much larger than flows generated by the hedging/insurance motives. We show theoretically that limiting financial trades may gen- erate welfare gains despite inhibiting insurance possibilities. Financial constraints tame speculation forces, limit movements of the net for- eign wealth positions, and thus reduce consumption volatility. This provides a novel justification for capital controls. Simulations indicate that welfare gains from imposing capital con- trols can be substantial, equivalent to a permanent consumption in- crease of up to 4%, or 80 times the cost of business cycles. Controls that activate only during substantial inflows or outflows are preferred to those constantly active, e.g. a transaction tax used by some emerg- ing market economies. Yet, despite improving macroeconomic stability capital controls may unintentionally lead to increased volatility in the domestic financial markets. | |
| dc.identifier | doi:10.22004/ag.econ.250031 | |
| dc.identifier | https://ageconsearch.umn.edu/record/250031/files/Cornell-Dyson-wp1609.pdf | |
| dc.identifier | http://ageconsearch.umn.edu/record/250031 | |
| dc.identifier.uri | http://hdl.handle.net/123456789/624313 | |
| dc.language | eng | |
| dc.publisher | ||
| dc.source | http://ageconsearch.umn.edu/record/250031 | |
| dc.title | Capital Flows, Beliefs, and Capital Controls | |
| dc.type | Text |