IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Sand in the Wheels of International Finance: Revisiting the Debate in Light of the East Asian Mayhem

  • Ramkishen Rajan

    ()

The turmoil that has characterised the global financial markets since the 1990s, and particularly the crisis in East Asia, has generated a great deal of support for proposals to add some frictions to the wheels of international finance, as part of overall reforms to the global financial architecture. With this in view, this paper explores the economic effects of and rationale for imposing levies on capital flows in general, and a Tobin tax in particular. It is argued that the primary aim of such a levy ought to be to act as a measure to prevent for a crisis from building up (i.e. a domestic boom fuelled by short-term capital inflows), rather than as a means of countering or providing breathing space for necessary adjustments once a crisis erupts (or threatens to do so). The Tobin tax needs to be fairly universal in its coverage, failing which there would be a migration of foreign exchange flows to tax havens. Admittedly, the political will to arrive at an international agreement on such a levy is far from assured. However, to the extent that developing economies are most impacted by the vagaries of the financial markets, each may find it in its best interest to unilaterally examine the efficacy of imposing Chilean-type measures of restraining capital flows, as appropriate and aggressive steps are taken to enhance the soundness and transparency of the banking and financial systems. [Working Paper No. 7]

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.esocialsciences.org/Download/repecDownload.aspx?fname=Document12172010120.2359583.pdf&fcategory=Articles&AId=2686&fref=repec
Download Restriction: no

Paper provided by eSocialSciences in its series Working Papers with number id:2686.

as
in new window

Length:
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:ess:wpaper:id:2686
Note: Institutional Papers
Contact details of provider: Web page: http://www.esocialsciences.org

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  2. repec:idb:wpaper:318 is not listed on IDEAS
  3. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
  4. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  5. 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.
  6. Neely, Christopher & Weller, Paul & Dittmar, Rob, 1997. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(04), pages 405-426, December.
  7. Shang-Jin Wei & Jeffrey A. Frankel, 1998. "Open Regionalism in a World of Continental Trade Blocs," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 440-453, September.
  8. 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.
  9. McKinnon, Ronald I. & Pill, Huw, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," World Development, Elsevier, vol. 26(7), pages 1267-1282, July.
  10. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
  11. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
  12. Raffer, Kunibert, 1998. "The tobin tax: Reviving a discussion," World Development, Elsevier, vol. 26(3), pages 529-538, March.
  13. Liliana Rojas-Suárez & Donald J Mathieson, 1993. "Liberalization of the Capital Account; Experiences and Issues," IMF Occasional Papers 103, International Monetary Fund.
  14. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  15. Shang-Jin Wei & Jungshik Kim, 1999. "The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?," CID Working Papers 5, Center for International Development at Harvard University.
  16. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc.
  17. Robert P. Flood & Peter M. Garber, 1980. "Gold Monetization and Gold Discipline," NBER Working Papers 0544, National Bureau of Economic Research, Inc.
  18. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers 233396, University of California-Berkeley, Department of Economics.
  19. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  20. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  21. Natalia T. Tamirisa, 1999. "Exchange and Capital Controls as Barriers to Trade," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 4.
  22. Jeffrey A. Frankel & Shang-Jin Wei, 1998. "Regionalization of World Trade and Currencies: Economics and Politics," NBER Chapters, in: The Regionalization of the World Economy, pages 189-226 National Bureau of Economic Research, Inc.
  23. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  24. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
  25. Jeffrey A. Frankel & Andrew K. Rose, 1994. "A Survey of Empirical Research on Nominal Exchange Rates," NBER Working Papers 4865, National Bureau of Economic Research, Inc.
  26. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  27. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
  28. Guillermo A. Calvo, 1995. "Varieties of Capital-Market Crises," IDB Publications (Working Papers) 5721, Inter-American Development Bank.
  29. Ramkishen S. Rejan, 1998. "The Currency And Financial Crisis In Southeast Asia - A Case Of `Sudden Deathã¢Â‚¬Â„¢ Or `Death Foretoldã¢Â‚¬Â„¢," Macroeconomics Working Papers 22381, East Asian Bureau of Economic Research.
  30. Robert P. Flood & Mark P. Taylor, 1996. "Exchange Rate Economics: What's Wrong with the Conventional Macro Approach?," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 261-302 National Bureau of Economic Research, Inc.
  31. Christopher J. Neely, 1997. "Technical analysis in the foreign exchange market: a layman's guide," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-38.
  32. Frankel, Jeffrey A. & Rose, Andrew K., 1995. "Empirical research on nominal exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 33, pages 1689-1729 Elsevier.
  33. James Tobin, 1998. "Financial Globalization: Can National Currencies Survive?," Cowles Foundation Discussion Papers 1188, Cowles Foundation for Research in Economics, Yale University.
  34. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 06-2016.
  35. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
  36. Ramkishen Rajan, 1998. "Restraints On Capital Flows : What Are They?," Macroeconomics Working Papers 22383, East Asian Bureau of Economic Research.
  37. Friberg, Richard & Vredin, Anders, 1996. "Exchange Rate Uncertainty and the Microeconomic Benefits of EMU," SSE/EFI Working Paper Series in Economics and Finance 127, Stockholm School of Economics.
  38. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, March.
  39. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  40. George S. Tavlas, 1997. "The International Use of the US Dollar: An Optimum Currency Area Perspective," The World Economy, Wiley Blackwell, vol. 20(6), pages 709-747, 09.
  41. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1995. "Capital inflows to Latin America with reference to the Asian experience," MPRA Paper 13840, University Library of Munich, Germany.
  42. Davidson, Paul, 1997. "Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?," Economic Journal, Royal Economic Society, vol. 107(442), pages 671-86, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ess:wpaper:id:2686. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Padma Prakash)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.