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The Effectiveness of Capital Controls: Implications for Monetary Autonomy in the Presence of Incomplete Market Separation

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  • Daniel Gros

    (International Monetary Fund)

Abstract

The long-run ineffectiveness of quantitative capital controls is demonstrated with a model in which economic agents can evade controls by incurring costs at the time that capital is transferred. Differentials between domestic and off-shore interest rates, as well as expectations about future yield differentials, provide incentives for capital flows, which in turn feed back to eliminate the differentials in the long run. Consequently, under fixed exchange rates the proportion of a change in domestic credit that is "offset" by capital flows is a function of time; quantitative capital controls can provide only temporary autonomy for national monetary policy.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 34 (1987)
Issue (Month): 4 (December)
Pages: 621-642

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Handle: RePEc:pal:imfstp:v:34:y:1987:i:4:p:621-642

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Cited by:
  1. Glick, Reuven & Hutchison, Michael, 2011. "The illusive quest: Do international capital controls contribute to currency stability?," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(1), pages 59-70, January.
  2. Phylaktis, Kate, 1999. "Capital market integration in the Pacific Basin region: an impulse response analysis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(2), pages 267-287, February.
  3. Hans Joachim Voth, 2001. "Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 552, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Reinhart, Carmen M. & Smith, R. Todd, 2002. "Temporary controls on capital inflows," Journal of International Economics, Elsevier, Elsevier, vol. 57(2), pages 327-351, August.
  5. David B. Gordon & Ross Levine, 1988. "The capital flight "problem."," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 320, Board of Governors of the Federal Reserve System (U.S.).
  6. repec:hal:wpaper:halshs-00684591 is not listed on IDEAS
  7. Sweta Saxena & Kar-yiu Wong, 1999. "Currency Crises and Capital Control: A Survey," Working Papers, University of Washington, Department of Economics 0045, University of Washington, Department of Economics.
  8. Mouhamadou Sy, 2012. "Exchange Rate Regimes, Capital Controls and the Pattern of Speculative Capital Flows," PSE Working Papers, HAL halshs-00684591, HAL.
  9. Philippe Bacchetta, 1996. "Capital controls and the political discount: The Spanish experience in the late 1980s," Open Economies Review, Springer, Springer, vol. 7(4), pages 349-369, October.
  10. Liliana Rojas-Suárez & Donald J. Mathieson & Michael P. Dooley, 1996. "Capital Mobility and Exchange Market Intervention in Developing Countries," IMF Working Papers, International Monetary Fund 96/131, International Monetary Fund.
  11. Oscar Bajo-Rubio & Sosvilla-Rivero Simon, 2001. "A Quantitative Analysis of the Effects of Capital Controls: Spain, 1986-1990," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(3), pages 129-146.

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