Capital Controls and International Trade Finance
AbstractThis 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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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3112.
Date of creation: Sep 1989
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