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Is There a Safe Passage to EMU? Evidence on Capital Controls and a Proposal

In: The Microstructure of Foreign Exchange Markets

  • Barry Eichengreen
  • Andrew K. Rose
  • Charles Wyplosz

This paper provides evidence on the effects of capital controls. We show that controls have been associated with significant differences in macroeconomic behaviour, especially in monetary policy. While they have not prevented speculative attacks, they have provided the breathing space needed to organize orderly realignments. We also provide evidence on the channels through which speculative attacks operate, showing that bank lending to non-residents is a key transmission mechanism. We conclude with a discussion of measures that mimic some of the effects of controls as a way of easing the transition to European Monetary Union. Non-interest-bearing deposit requirements on lending to non-residents are proposed as a third-best route to monetary union.

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This chapter was published in:
  • Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1, August.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11369.
    Handle: RePEc:nbr:nberch:11369
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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