DP2011 Can Short-Term Capital Controls Promote Capital Inflows
|Publication Date:||November 1998|
|Keyword(s):||bank runs, Capital Controls, Capital Inflows, Herd Behaviour|
|JEL(s):||F32, G14, G24|
|Programme Areas:||International Macroeconomics, Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2011|
In an economy à la Diamond and Dybvig (1983), we present an example in which foreign lenders find it profitable to invest in an emerging market if, and only if, the emerging market government imposes taxes on short-term capital inflows. This implies that capital controls that are effective in reducing the vulnerability of emerging markets to financial crises may increase the volume of capital inflows.