A theory of capital controls as dynamic terms-of-trade manipulation

Arnaud Costinot, Guido Lorenzoni, Iván Werning

Research output: Contribution to journalArticle

27 Scopus citations

Abstract

We develop a theory of capital controls as dynamic terms-of-trade manipulation. We study an infinite-horizon endowment economy with two countries. One country chooses taxes on international capital flows in order to maximize the welfare of its representative agent, while the other country is passive. We show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows. Although our theory of capital controls emphasizes interest rate manipulation, the pattern of borrowing and lending, per se, is irrelevant.

Original languageEnglish (US)
Pages (from-to)77-128
Number of pages52
JournalJournal of Political Economy
Volume122
Issue number1
DOIs
StatePublished - Feb 2014

ASJC Scopus subject areas

  • Economics and Econometrics

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