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Self-fulfillment Expectations, Speculation Attacks, and Capitol Controls

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  • Harris Dellas
  • Alan C. Stockman

Abstract

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.

Suggested Citation

  • Harris Dellas & Alan C. Stockman, 1988. "Self-fulfillment Expectations, Speculation Attacks, and Capitol Controls," NBER Working Papers 2625, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2625
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    References listed on IDEAS

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    1. Stockman, Alan C., 1988. "Real exchange-rate variability under pegged and floating nominal exchange-rate systems: An equilibrium theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 259-294, January.
    2. Sebastian Edwards, 1984. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments," NBER Working Papers 1507, National Bureau of Economic Research, Inc.
    3. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
    4. 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.
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    Cited by:

    1. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.

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