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How the Machinery of International Finance Runs with Sand in Its Wheels

  • Reinhart, Vincent R

The dramatic swings in international capital movements in recent years have renewed interest in restrictions on capital flows. This paper provides a model of international asset flows and domestic equity price formation incorporating three restrictions on capital flows. A transaction tax introduces significant asymmetries in the reaction of asset prices to financial and real shocks but has no long-lived effects. Policies targeted to the level of net foreign debt by imposing a tax or outright controls do influence the steady-state levels of the real exchange rate and relative equity prices. Copyright 2000 by Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 8 (2000)
Issue (Month): 1 (February)
Pages: 74-85

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Handle: RePEc:bla:reviec:v:8:y:2000:i:1:p:74-85
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  1. Leonardo Leiderman & Guillermo A. Calvo & Carmen Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," Research Department Publications 4002, Inter-American Development Bank, Research Department.
  2. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
  3. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  4. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "El problema de la afluencia de capital: Conceptos y temas
    [The Capital Inflows Problem: Concepts and Issues]
    ," MPRA Paper 13682, University Library of Munich, Germany.
  5. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  6. Carmen M. Reinhart & R. Todd Smith, 1996. "Too much of a good thing: the macroeconomic effects of taxing capital inflows," Proceedings, Federal Reserve Bank of San Francisco, pages 436-464.
  7. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
  8. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-72, January.
  9. Reinhart, Vincent, 1991. "The 'Tobin tax,' asset accumulation, and the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 420-431, September.
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