TY  - JOUR
AU  - Korinek, Anton
AU  - Sandri, Damiano
TI  - Capital Controls or Macroprudential Regulation?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 20805
PY  - 2014
Y2  - December 2014
DO  - 10.3386/w20805
UR  - http://www.nber.org/papers/w20805
L1  - http://www.nber.org/papers/w20805.pdf
N1  - Author contact info:
Anton Korinek
Department of Economics
University of Virginia
Monroe Hall 246
248 McCormick Rd
Charlottesville, VA 22904
E-Mail: anton@korinek.com

Damiano Sandri
International Monetary Fund
700 19th Street N.W.
Washington D.C. 20431
E-Mail: dsandri@imf.org
M1  - published as Anton Korinek, Damiano Sandri. "Capital Controls or Macroprudential Regulation?," in Michael B. Devereux, Francesco Giavazzi, and Kenneth D. West, editors, "NBER International Seminar on Macroeconomics 2015" Journal of International Economics (Elsevier), Volume 99, Supplement 1 (2016)

AB  - We examine the effectiveness of capital controls versus macroprudential regulation in reducing financial fragility in a small open economy model in which there is excessive borrowing because of externalities associated with financial crises and contractionary exchange rate depreciations. We find that both types of instruments play distinct roles: macroprudential regulation reduces the indebtedness of leveraged borrowers whereas capital controls induce more precautionary behavior for the economy as a whole, including for savers. This reduces crisis risk by shoring up aggregate net worth and mitigating the transfer problem that occurs during crises. In advanced countries where the risk of large contractionary depreciations is more limited, the role for capital controls subsides. However, macroprudential regulation remains essential in our model to mitigate booms and busts in asset prices.
ER  -