Working Paper: NBER ID: w15927
Authors: Olivier Jeanne; Anton Korinek
Abstract: This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.
Keywords: No keywords provided
JEL Codes: F3; F32; F34; G01; G15; G18; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Restricting capital inflows during boom periods (F32) | Reduction in potential outflows during subsequent busts (F65) |
| Reduction in potential outflows during subsequent busts (F65) | Decrease in macroeconomic volatility (E39) |
| Financial constraints tightening and collateral asset prices collapsing (E44) | Increased volatility (E32) |