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Capital account liberalization as a signal

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  • Leonardo Bartolini
  • Allan Drazen

Abstract

This paper presents a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, contingent on government attitudes toward taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a positive signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have recently liberalized their capital accounts.

Suggested Citation

  • Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:11
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Accounting; Capital movements;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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