IMF Working Papers

The New Economics of Capital Controls Imposed for Prudential Reasons+L4888

By Anton Korinek

December 1, 2011

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Format: Chicago

Anton Korinek. The New Economics of Capital Controls Imposed for Prudential Reasons+L4888, (USA: International Monetary Fund, 2011) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides an introduction to the new economics of prudential capital controls in emerging economies. This literature is based on the notion that there are externalities associated with financial crises because individual market participants do not internalize their contribution to aggregate financial instability when they make their finacing decisions. As a result they impose externalities in the form of greater financial instability on each other, and the private financing decisions of individuals are distorted towards excessive risk-taking. We discuss how prudential capital controls can induce private agents to internalize these externalities and thereby increase macroeconomic stability and enhance welfare.

Subject: Asset prices, Balance of payments, Capital controls, Exchange rates, Financial crises, Financial statements, Foreign exchange, Prices, Public financial management (PFM)

Keywords: Asset prices, Balance sheet effects, Capital controls, Exchange rates, Financial crises, Financial statements, Foreign currency, Global, Long-term debt, Pareto efficiency, Pecuniary externalities, Pecuniary externality, Price movement, Short-term debt, WP

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2011/298

  • Stock No:

    WPIEA2011298

  • ISBN:

    9781463927844

  • ISSN:

    1018-5941

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