RIEB Discussion Paper Series No.2013-09


The Potential Welfare Benefit of Capital Controls: The Case of Korea


This paper develops a stochastic growth model of a small open economy augmented with banks. We estimate the model by using Bayesian methods and examine how capital controls affect the economy's welfare. The results of our our analysis show that there exits an optimal degree of capital controls that achieves a higher level of welfare than that of under perfect capital mobility as a second best policy, and the welfare effect in the case of Korea is not negligible.


Capital controls, Welfare, DSGE, Small open economy models, Banks, Emerging market economies, Bayesian estimation, Korea


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

Graduate School of Economics, Kobe University, Japan