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  • August 2004
  • Article
  • Review of International Economics

Capital Controls, Risk and Liberalization Cycles

By: Laura Alfaro and Fabio Kanczuk
  • Format:Print
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Abstract

The paper presents an overlapping-generations model where agents vote on whether to open or close the economy to international capital flows. Political decisions are shaped by the risk over capital and labor returns. In an open economy, the capitalists (old) completely hedge their savings income. In contrast, in a closed economy, the workers (young) partially insulate wages from the productivity shocks.There are three possible equilibrium outcomes: economies that eventually remain open; those that eventually remain closed; and those that cycle between open and closed. In line with the stylized facts, cycles are more common in economies with intermediate development levels.

Keywords

Business Cycles; Development Economics; Voting; Risk And Uncertainty; Cash Flow; Saving; Investment; Economy; Wages

Citation

Alfaro, Laura, and Fabio Kanczuk. "Capital Controls, Risk and Liberalization Cycles." Review of International Economics 12, no. 3 (August 2004): 412–434.
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About The Author

Laura Alfaro

General Management
→More Publications

More from the Authors

    • March 2021
    • Journal of Financial Economics

    On the Direct and Indirect Real Effects of Credit Supply Shocks

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    Latam Airlines and COVID-19: Seeking Bankruptcy Protection in the United States

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    Reserve Accumulation, Sovereign Debt, and Exchange Rate Policy

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More from the Authors
  • On the Direct and Indirect Real Effects of Credit Supply Shocks By: Laura Alfaro, Manuel García-Santana and Enrique Moral-Benito
  • Latam Airlines and COVID-19: Seeking Bankruptcy Protection in the United States By: Laura Alfaro
  • Reserve Accumulation, Sovereign Debt, and Exchange Rate Policy By: Laura Alfaro and Fabio Kanczuk
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