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Special Exchange Rates for Capital Account Transactions

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Rudiger Dornbusch

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Abstract

The exchange rate consistent with high employment and a balanced current account are rarely the same as the rates consistent with asset market equilibrium at interest rates policy makers wish to prevail. Whenever rates are freely determined the assets markets prevail and the results may be hard to live with, or at least harder than would appear to be the case of special exchange rates and capital controls which are used to isolate home assets markets from the world capital market. This paper investigates the motive for choosing capital controls and special exchange rates, the principal forms and some of the experience. We look in particular at three institutional arrangements:(1) dual exchange rates separating current and capital account transactions,(2) black or parallel markets for foreign exchange,(3) exchange rate guarantees, dollar deposits and dollar-linked domestic debt.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1659.

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Date of creation: Dec 1986
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Handle: RePEc:nbr:nberwo:1659

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  1. Kiguel, Miguel A. & O'Connell, Stephen A., 1994. "Parallel exchange rates in developing countries : lessons from eight case studies," Policy Research Working Paper Series 1265, The World Bank. [Downloadable!]
  2. Aron, Janine & Elbadawi, Ibrahim A., 1992. "Parallel markets, the foreign exchange auction, and exchange rate unification in Zambia," Policy Research Working Paper Series 909, The World Bank. [Downloadable!]
  3. Salvador Valdés, 1989. "Control de Cambios en Países en Desarrollo," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 26(77), pages 115-144. [Downloadable!]
  4. Pinto, Brian, 1988. "Black market premia, exchange rate unification, and inflation in sub-Saharan Africa," Policy Research Working Paper Series 37, The World Bank. [Downloadable!]
  5. Sweta Saxena & Kar-yiu Wong, 1999. "Currency Crises and Capital Control: A Survey," Discussion Papers in Economics at the University of Washington 0045, Department of Economics at the University of Washington. [Downloadable!]
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  6. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferrett, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Huizinga, H., 1996. "The taxation implicit in two-tiered exchange rate systems," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
  8. Jacob A. Frenkel & Assaf Razin, 1989. "Exchange-Rate Management Viewed as Tax Policies," NBER Working Papers 2653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Reisen, Helmut, 1989. "Public debt, North and South," Policy Research Working Paper Series 253, The World Bank. [Downloadable!]
  10. Sebastian Edwards & Peter Montiel, 1991. "Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries," NBER Working Papers 2866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Robert Flood & Nancy Marion, 1989. "Risk Neutrality and the Two-Tier Foreign Exchange Market: Evidence from Belgium," NBER Working Papers 3015, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Pinto, Brian, 1988. "Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa," Policy Research Working Paper Series 84, The World Bank. [Downloadable!]
  13. Alberto Giovannini & Jan Won Park, 1989. "Capital Controls and International Trade Finance," NBER Working Papers 3112, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Ibrahim Onour, 2000. "Unification of Dual Foreign Exchange Markets," Economic Change and Restructuring, Springer, vol. 33(3), pages 171-184, October. [Downloadable!] (restricted)
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