Self-fulfillment Expectations, Speculation Attacks, and Capitol Controls
This paper examines the endogenous implementation of capital controls in the context of a fixed exchange rate regime. It is shown that if there exists a non-zero probability that the policymaker's response to a speculative attack on official foreign reserves will be the introduction of controls, such an attack may occur even when current and expected monetary policy is consistent with a permanently viable, control-free fixed exchange rate regime. Consequently, capital controls may be the outcome of self- fulfilling expectations rather than the result of imprudent economic policies.
|Date of creation:||Jun 1988|
|Date of revision:|
|Publication status:||published as Dellas, Harris and Alan C. Stockman. "Self-Fulfilling Expectations, Speculative Attacks, And Capital Controls," Journal of Money, Credit and Banking, 1993, v25(4), 721-730.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Sebastian Edwards, 1983. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments: A Survey of the Major Issues," UCLA Economics Working Papers 310, UCLA Department of Economics.
- Obstfeld, Maurice, 1986.
"Rational and Self-fulfilling Balance-of-Payments Crises,"
American Economic Review,
American Economic Association, vol. 76(1), pages 72-81, March.
- Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
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