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Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999

  • Hans Joachim Voth

For most of the post-war period, Europe’s capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using an event-study methodology, I examine the extent to which restrictions of current and capital account convertibility affected stock returns. The delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings offer an explanation for the mounting evidence suggesting that capital account liberalization facilitates growth.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/552.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 552.

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Date of creation: May 2001
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Handle: RePEc:upf:upfgen:552
Contact details of provider: Web page: http://www.econ.upf.edu/

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