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Capital Account Policies and the Real Exchange Rate

  • Olivier Jeanne

This paper presents a simple model of how a small open economy can undervalue its real exchange rate using its capital account policies. The paper presents several properties of such policies, and proposes a rule of thumb to assess their welfare cost. The model is applied to an analysis of Chinese capital account policies.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/669583
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File URL: http://www.jstor.org/stable/full/10.1086/669583
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Article provided by University of Chicago Press in its journal NBER International Seminar on Macroeconomics.

Volume (Year): 9 (2013)
Issue (Month): 1 ()
Pages: 7 - 42

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Handle: RePEc:ucp:intsma:doi:10.1086/669583
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  1. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," NBER Working Papers 11366, National Bureau of Economic Research, Inc.
  2. Javier Bianchi, 2010. "Overborrowing and Systemic Externalities in the Business Cycle," 2010 Meeting Papers 96, Society for Economic Dynamics.
  3. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  4. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers 2690, C.E.P.R. Discussion Papers.
  5. Ceyhun Bora Durdu & Enrique G. Mendoza & Marco E. Terrones, 2007. "Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Merchantilism," NBER Working Papers 13123, National Bureau of Economic Research, Inc.
  6. Kumhof, Michael, 2010. "On the theory of sterilized foreign exchange intervention," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1403-1420, August.
  7. Christopher D. Carroll & Olivier Jeanne, 2009. "A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds," Working Paper Series WP09-10, Peterson Institute for International Economics.
  8. Mark Aguiar & Manuel Amador, 2009. "Growth in the Shadow of Expropriation," Discussion Papers 08-051, Stanford Institute for Economic Policy Research.
  9. Korinek, Anton & Serven, Luis, 2010. "Undervaluation through foreign reserve accumulation : static losses, dynamic gains," Policy Research Working Paper Series 5250, The World Bank.
  10. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
  11. Gabriele Galati & Piti Disyatat, 2005. "The effectiveness of foreign exchange intervention in emerging market countries: evidence from the Czech koruna," BIS Working Papers 172, Bank for International Settlements.
  12. Olivier Jeanne & Arvind Subramanian & John Williamson, 2012. "Who Needs to Open the Capital Account?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 5119, May.
  13. Sebastian Edwards, 1985. "On the Interest Rate Elasticity of the Demand for International Reserves: Some Evidence from Developing Coutries," NBER Working Papers 1532, National Bureau of Economic Research, Inc.
  14. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2011. "Growing Like China," American Economic Review, American Economic Association, vol. 101(1), pages 196-233, February.
  15. Anton Korinek, 2011. "The New Economics of Prudential Capital Controls: A Research Agenda," IMF Economic Review, Palgrave Macmillan, vol. 59(3), pages 523-561, August.
  16. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
  17. Guonan Ma & RobertN McCauley, 2008. "Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 104-123, 02.
  18. Damiano Sandri, 2014. "Growth and Capital Flows with Risky Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 102-23, July.
  19. International Monetary Fund, 2011. "Foreign Exchange Intervention; A Shield Against Appreciation Winds?," IMF Working Papers 11/165, International Monetary Fund.
  20. Backus, David K. & Kehoe, Patrick J., 1989. "On the denomination of government debt : A critique of the portfolio balance approach," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 359-376, May.
  21. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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