RIEB Discussion Paper Series No.2014-25
Title
A Comparison between Optimal Capital Controls under Fixed Exchange Rates and Optimal Monetary Policy under Flexible Rates
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.
Keywords
Optimal capital controls, Optimal monetary policy, Ramsey policy, Exchange rate regimes, Small open economy, Sticky prices, Welfare comparison, Incomplete markets
JEL Classification
E5, F4
Inquiries
Shigeto KITANO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059
Kenya TAKAKU
Faculty of Business, Aichi Shukutoku University
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059
Kenya TAKAKU
Faculty of Business, Aichi Shukutoku University