Sofia Bauducco

Beware the side effects: Capital controls, misallocation and welfare

Abstract: We study the effects of capital controls using a dynamic model with heterogeneous firms, monopolistic competition, endogenous trade participation and financial frictions. Taxing foreign borrowing increases misallocation via static effects that reduce capital- labor ratios and increase firm prices, reduces it via dynamic effects that strengthen saving incentives, and may increase or reduce it via general equilibrium effects. Quantitative analysis calibrated to the 1990s Chilean encaje predicts higher misallocation with larger effects on more financially-dependent firms (exporters, younger or less productive firms). Social welfare falls and welfare costs are much larger for exporters. LTV regulation that reduces aggregate credit by the same amount yields much smaller welfare costs, even tough misallocation still rises, because it spreads the burden of credit tightening more evenly and real wages and output fall less. Empirical evidence from Chilean firm-level data shows that misallocation did increase relatively more for more productive firms, for exporters and for firms that were further away from their steady state. 

Datos del Seminario

Fecha de inicio:
27 de Mayo, 2022 | 12:00 hrs.

Fecha de término
27 de Mayo, 2022 | 13:00 hrs.