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Capital control and exchange rate volatility

Author

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  • Chen, Shikuan
  • Chang, Ming-Jen

Abstract

The study offers one conceptual and theoretical framework for evaluating the economic effects of a trading tax on foreign exchange transactions. Taxes and the price stickiness mechanism are taken into account in the model. When prices are flexible, full monetary neutrality can be obtained even in the short-term. Intuitively, taxes on foreign exchange transactions discourage speculation by rising currency trading costs, and, thus, increase the stability of the exchange rate. Finally, the results show that not only the exchange rate but consumption, investment and employment will become less volatile by imposing trading taxes on foreign exchange transactions.

Suggested Citation

  • Chen, Shikuan & Chang, Ming-Jen, 2015. "Capital control and exchange rate volatility," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 167-177.
  • Handle: RePEc:eee:ecofin:v:33:y:2015:i:c:p:167-177
    DOI: 10.1016/j.najef.2015.04.005
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    References listed on IDEAS

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    1. repec:eee:intfin:v:51:y:2017:i:c:p:142-154 is not listed on IDEAS
    2. Dong, Baomin & Gu, Xinhua & Song, Huasheng, 2017. "Capital market liberalization: Optimal tradeoff and bargaining delay," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 78-88.
    3. Ally, Jamie & Pryor, Trevor, 2016. "Life cycle costing of diesel, natural gas, hybrid and hydrogen fuel cell bus systems: An Australian case study," Energy Policy, Elsevier, vol. 94(C), pages 285-294.

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