This paper provides an introduction to the new economics of prudential capital controls in emerging economies. This literature is based on the notion that there are externalities associated with financial crises because individual market participants do not internalize their contribution to...

When one region of the world economy experiences a financial crisis, the world-wide availability of investment opportunities declines. As global investors search for new destinations for their capital, other regions will experience inflows of hot money. However, large capital inflows make the...