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A Comparison between Optimal Capital Controls under Fixed Exchange Rates and Optimal Monetary Policy under Flexible Rates

Author

Listed:
  • Shigeto Kitano

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Kenya Takaku

    (Faculty of Business, Aichi Shukutoku University)

Abstract

We apply a Ramsey-type analysis to a standard sticky price, small open economy model, examining the welfare implications of optimal capital controls under fixed exchange rates and optimal monetary policy under flexible exchange rates. We show that capital controls can significantly reduce the gap between the welfare levels under fixed and flexible exchange rates.

Suggested Citation

  • Shigeto Kitano & Kenya Takaku, 2014. "A Comparison between Optimal Capital Controls under Fixed Exchange Rates and Optimal Monetary Policy under Flexible Rates," Discussion Paper Series DP2014-25, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2014-25
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    Cited by:

    1. Agénor, Pierre-Richard & Jia, Pengfei, 2020. "Capital controls and welfare with cross-border bank capital flows," Journal of Macroeconomics, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Optimal capital controls; Optimal monetary policy; Ramsey policy; Exchange rate regimes; Small open economy; Sticky prices; Welfare comparison; Incomplete markets;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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