Capital controls and international financial stability: a dynamic general equilibrium analysis in incomplete markets

Arbeitspapier

In this paper, we conduct an analysis of the implications of capital controls for financial stability. We study a financial transaction (Tobin) tax applicable to cross-border capital flows in a multi-good, multi-country dynamic equilibrium model with incomplete financial markets and heterogeneous agents. The results derived from the model suggest that the impact of capital controls may vary considerably across market segments. In currency markets, capital controls reduce the volatility. However, in international stock markets, their introduction amplifies price movements, thus, increases the volatility; but it reduces a country's vulnerability to external shocks, thereby limiting spillover effects.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1578

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Foreign Exchange ; Asset Pricing; Trading Volume; Bond Interest Rates ; International Financial Markets
• Subject: Capital controls ; financial stability ; financial transaction (Tobin) tax ; General Equilibrium ; incomplete financial markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buss, Adrian
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/154011
• Last update: 10.03.2025, 11:45 AM CET