• "The role of inequality in the optimal design of capital controls" (Link: The Latest Version)

Abstract:

Sudden stops in capital inflows are disruptive and costly events that can cause severe redistributive effects. In this paper, I investigate the role of inequality in the design of optimal capital controls that seek to mitigate the negative effects of these phenomena. To do so, I set up a small open production economy model with collateral constraints and two types of agents that are heterogeneous in income and borrowing capacities. I calibrate the model and use the model to study the response of the economy to exogenous shocks that produce a tightening of the collateral constraint and a reversal of the current account as observed during sudden stops. I then solve the constrained solution for a Social Planner´s problem that cares about both the standard pecuniary externality in these models and also redistribution. I use the model to disentangle the role of these two channels and find that inequality implies differentiated capital controls between high income and low income agents. While in normal times taxes are higher for high income households to prevent overborrowing, the planner allows low income households to borrow more to enable some redistribution. When the economy faces a sudden stop, taxes for all agents are reduced to nearly zero. Finally, I investigate the welfare effects of implementing a simple, constant, and uniform rule for capital controls.

Presentations:

2024: Macroeconomics Lunch Workshop at Centre de Recerca en Economía International – CREi (Barcelona – Spain); Czech Economic Society – CES (Prague - Czech Republic); Charles University (Prague - Czech Republic); Central Bank of Chile; Public Economic Theory – PET (Santiago-Chile). 

2023:  LACEA-LAMES in Pontificia Universidad Javeriana (Bogotá-Colombia); Sociedad de Economía de Chile in Universidad Diego Portales (Santiago-Chile); WorkShop PhD Students in Pontificia Universidad Católica de Chile (Santiago-Chile)

• "Backtesting fan charts of activity and inflation: the Chilean case", Central Bank of Chile, Working Paper 881, June 2021, with Jorge Fornero.