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Capital Controls and the Real Exchange Rate

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  • van Wijnbergen, Sweder

Abstract

Capital import taxes lower (raise) world (home) interest rates. This shifts home expenditure from the present to the future and foreign expenditure from the future to today. With identical home and foreign expenditure patterns, the change in the composition of world expenditure has no effect on demand for any commodity. Then capital controls have no effect on the real exchange rate. When consumers prefer home goods, capital controls cause lower demand today for home goods. In that case, capital controls lower the real exchange rate today. This result is mitigated when the country imposing capital controls is a large debtor. Copyright 1990 by The London School of Economics and Political Science.

Suggested Citation

  • van Wijnbergen, Sweder, 1990. "Capital Controls and the Real Exchange Rate," Economica, London School of Economics and Political Science, vol. 57(225), pages 15-28, February.
  • Handle: RePEc:bla:econom:v:57:y:1990:i:225:p:15-28
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    Cited by:

    1. 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.
    2. Timothy J Condon, 1986. "Flujo de Comercio y la Política del Tipo de Cambio Reptante: Un Modelo de Predicción Perfecta de Largo Plazo," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 23(68), pages 25-48.
    3. James Tybout, 1985. "Desempeño Financiero de las Empresas Durante las Reformas en el Cono Sur," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 22(65), pages 3-12.
    4. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, May.

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