ABSTRACT
This chapter reviews the case for and experience with capital account regulations. Based on a standard small open-economy macroeconomic model with a fixed exchange rate, Farhi and Werning explored the optimal use of capital controls in response to various macroeconomic shocks. It is important to emphasize that some of the differences in the results of alternative studies, even by different authors on the same country in a given time period, are associated with changes in the methodology and data sources. In 2011 and 2012 the International Monetary Fund (IMF) Board undertook a deep discussion on the role of capital account regulations, proposing first what it called first a 'possible policy framework' and later an 'institutional view'. Following recent IMF advice, it would be also good for source countries to take into account the externalities that It may generate on other countries through their monetary policy and to give broader freedom in international treaties to use this instrument.
