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Is There a Safe Passage to EMU? Evidence on Capital Controls and a Proposal

In: The Microstructure of Foreign Exchange Markets

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  • Barry Eichengreen
  • Andrew K. Rose
  • Charles Wyplosz

Abstract

This paper provides evidence on the effects of capital controls. We show that controls have been associated with significant differences in macroeconomic behaviour, especially in monetary policy. While they have not prevented speculative attacks, they have provided the breathing space needed to organize orderly realignments. We also provide evidence on the channels through which speculative attacks operate, showing that bank lending to non-residents is a key transmission mechanism. We conclude with a discussion of measures that mimic some of the effects of controls as a way of easing the transition to European Monetary Union. Non-interest-bearing deposit requirements on lending to non-residents are proposed as a third-best route to monetary union.

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This chapter was published in:

  • Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11369.

    Handle: RePEc:nbr:nberch:11369

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    Cited by:
    1. Weller, Christian E., 1999. "Financial crises after financial liberalization: Exceptional circumstances or structural weakness?," ZEI Working Papers B 15-1999, ZEI - Center for European Integration Studies, University of Bonn.
    2. Straetmans, Stefan T.M. & Versteeg, Roald J. & Wolff, Christian C.P., 2013. "Are capital controls in the foreign exchange market effective?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 35(C), pages 36-53.
    3. Ramkishen Rajan, 1998. "Restraints On Capital Flows : What Are They?," Macroeconomics Working Papers 22383, East Asian Bureau of Economic Research.
    4. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1995. "Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 95-04, Federal Reserve Bank of San Francisco.
    5. Kenen, Peter B., 1995. "What have we learned from the EMS crises?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 17(5), pages 449-461, October.
    6. Mariassunta Giannetti, 2004. "Old and Modern Currency Crises: Short-Term Liabilities, Speculative Attacks and Business Cycles," Econometric Society 2004 North American Summer Meetings 133, Econometric Society.
    7. Christian Wolff & Stefan T.M. Straetmans & Roald J. Versteeg, 2008. "Are Capital Controls in the Foreign Exchange Market Effective?," LSF Research Working Paper Series, Luxembourg School of Finance, University of Luxembourg 08-12, Luxembourg School of Finance, University of Luxembourg.
    8. Antoine Magnier & Benoît Cœuré, 1996. "Crédibilité et fondamentaux macro-économiques au sein du SME : un examen empirique," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 123(2), pages 113-146.
    9. Ramkishen Rajan, 2010. "Sand in the Wheels of International Finance: Revisiting the Debate in Light of the East Asian Mayhem," Working Papers id:2686, eSocialSciences.

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