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Capital Controls and the Timing of Exchange Regime Collapse

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  • Daekuen Park
  • Jeffrey Sachs

Abstract

This paper investigates the nature of balance of payments crises in regimes with capital controls. It extends earlier work on capital controls by assuming that households manage their consumption and asset portfolios to maximize intertemporal utility. Our main result is that capital controls are effective in delaying, but not preventing, a breakdown of a fixed exchange rate regime in the presence of money-financed fiscal deficits.

Suggested Citation

  • Daekuen Park & Jeffrey Sachs, 1987. "Capital Controls and the Timing of Exchange Regime Collapse," NBER Working Papers 2250, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2250
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    References listed on IDEAS

    as
    1. Joshua Aizenman, 1986. "On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 114-133, February.
    2. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February.
    3. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-890, October.
    4. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-1329, December.
    5. Penati, Alessandro & Pennacchi, George, 1989. "Optimal portfolio choice and the collapse of a fixed-exchange rate regime," Journal of International Economics, Elsevier, vol. 27(1-2), pages 1-24, August.
    6. Calvo, Guillermo A, 1987. "Balance of Payments Crises in a Cash-in-Advance Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 19-32, February.
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    Cited by:

    1. Ricardo Hausmann, 1995. "Dealing with Negative Oil Shocks: The Venezuelan Experience in the Eighties," Research Department Publications 4010, Inter-American Development Bank, Research Department.
    2. Kitano, Shigeto, 2011. "Capital controls and welfare," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 700-710.
    3. Shigeto Kitano, 2007. "Capital Controls, Public Debt and Currency Crises," Journal of Economics, Springer, vol. 90(2), pages 117-142, March.
    4. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferretti, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc.
    5. Ricardo Hausmann, 1995. "Manejo de sacudidas petroleras negativas: la experiencia venezolana en los años 80," Research Department Publications 4011, Inter-American Development Bank, Research Department.
    6. Kathleen Dorsainvil, 2000. "Collapsing exchange rate regimes in the presence of a parallel market," Applied Economics, Taylor & Francis Journals, vol. 32(6), pages 671-680.

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