Terms of Trade Disturbances, Real Exchange Rates and Welfare: the Role of Capital Controls and Labor Market Distortions

44 Pages Posted: 4 Jul 2004 Last revised: 12 Dec 2022

See all articles by Sebastian Edwards

Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Jonathan D. Ostry

Georgetown University; International Monetary Fund (IMF)

Date Written: March 1989

Abstract

Many arguments that have been advanced in favor of maintaining capital control within the EEC have not paid sufficient attention to the welfare consequences of this type of market intervention. Our paper provides a simple, optimizing framework in which the welfare consequences of capital controls can be assessed. Two main issues are considered. First, how do capital controls affect the adjustment of macroeconomic variables to real disturbances? Second, what is the nature of second best arguments for maintaining capital controls given that certain distortions will remain after the European single market is in place in 1992?

Suggested Citation

Edwards, Sebastian and Ostry, Jonathan D., Terms of Trade Disturbances, Real Exchange Rates and Welfare: the Role of Capital Controls and Labor Market Distortions (March 1989). NBER Working Paper No. w2907, Available at SSRN: https://ssrn.com/abstract=227219

Sebastian Edwards (Contact Author)

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Jonathan D. Ostry

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