Our junior faculty Professor Changhua Yu's paper 'Capital controls and monetary policy in sudden-stop economies' (joint work with Michael B. Devereux and  Eric R. Young) has been accepted for publication by Journal of Monetary Economics

Abstract:
The dangers of high capital ?ow volatility and sudden stops have led economists to promote the use of capital controls as an addition to monetary policy in emerging market economies. This paper studies the bene?ts of capital controls and monetary policy in a small open economy with ?nancial frictions,nominal rigidities, and sudden stops. Without commitment, the optimal monetary policy should sharply diverge from price stability. The policymakers will also tax capital in?ows in a crisis, but such taxes may be welfare reducing. With commitment, capital controls involve a mix of current capital in?ow taxes and future capital ?ow subsidies. The optimal policy will never involve macro-prudential capital
in?ow taxes or a departure from price stability, whether or not commitment is available.

Short-Bio

Changhua Yu is an Assistant Professor at National School of Development at Peking University. He received his PhD from the University of British Columbia in 2012. He has been a Visiting Research Fellow at Hong Kong Institute of Monetary Research. His area of expertise is international finance and macroeconomics. In his current researches, Doctor Yu focuses on international capital flows and financial crisis, the interaction among capital controls, monetary policy and macroprudential policies, international production network and fiscal policies. His paper has appeared in Journal of International Economics, Journal of Monetary Economics, Journal of international money and finance, IMF economic review.