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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1061.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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