Capital controls are second-best policies: IMF paper
Prudential capital controls can mitigate the effects of financial externalities but should be a second-best option, according to an International Monetary Fund paper published on Thursday.
Anton Korinek, the paper's author, provides an overview of the emerging literature on prudential capital controls – controls that are imposed with the objective to reduce the risk of future financial instability.
According to the literature, capital controls might be desirable to counteract the pecuniary
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