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Capital Controls and International Trade Finance

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  • Alberto Giovannini
  • Jan Won Park
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    Abstract

    This paper studies the effects of prohibiting individuals from holding foreign assets, and of allowing firms to trade in foreign assets only up to what is needed to finance export and import activities. Although firms can perform arbitrage between domestic and foreign financial markets, the distortions in asset markets are not fully arbitraged away but instead they are transmitted to domestic goods market. The paper discusses the effects of shocks in foreign financial markets and in domestic fiscal policy. We show that the dynamics and steady states are crucially affected by capital controls.

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    File URL: http://www.nber.org/papers/w3112.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3112.

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    Date of creation: Sep 1989
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    Handle: RePEc:nbr:nberwo:3112

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    References

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    1. Stockman, Alan C & Hernandez D, Alejandro, 1988. "Exchange Controls, Capital Controls, and International Financial Markets," American Economic Review, American Economic Association, vol. 78(3), pages 362-74, June.
    2. Jeremy Greenwood & Kent P. Kimbrough, 1985. "Capital Controls and Fiscal Policy in the World Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 743-65, November.
    3. Giovannini, Alberto, 1988. "The real exchange rate, the capital stock, and fiscal policy," European Economic Review, Elsevier, vol. 32(9), pages 1747-1767, November.
    4. Maurice Obstfeld, 1986. "Capital Controls, The Dual Exchange Rate, and Devaluation," NBER Working Papers 1324, National Bureau of Economic Research, Inc.
    5. Gagnon, Joseph E., 1989. "Adjustment costs and international trade dynamics," Journal of International Economics, Elsevier, vol. 26(3-4), pages 327-344, May.
    6. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
    7. Sebastian Edwards & Jonathan D. Ostry, 1992. "Terms of Trade Disturbances, Real Exchange Rates and Welfare: The Role of Capital Controls and Labor Market Distortions," NBER Working Papers 2907, National Bureau of Economic Research, Inc.
    8. Dornbusch, Rudiger, 1986. "Special Exchange Rates for Capital Account Transactions," World Bank Economic Review, World Bank Group, vol. 1(1), pages 3-33, September.
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    Cited by:
    1. Daniele Checchi, 1992. "What are the Real Effects of Liberalizing International Capital Movements?," Open Economies Review, Springer, vol. 3(1), pages 83-125, February.

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