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Dilemma Not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows

The paper considers a standard New Keynesian model of a small open economy with nominal rigidities and studies optimal capital controls. Consistent with the Mundellian view, it finds that the exchange rate regime is key. However, in contrast with the Mundellian view, the paper finds that capital controls are desirable even when the exchange rate is flexible. Optimal capital controls lean against the wind and help smooth out capital flows.
Year of publication:
2014
Authors: Farhi, Emmanuel ; Werning, Iván
Published in:
IMF Economic Review. - Palgrave Macmillan, ISSN 2041-4161. - Vol. 62.2014, 4, p. 569-605
Publisher: Palgrave Macmillan
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Type of publication: Article
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Persistent link: https://www.econbiz.de/10011105963
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