Exchange Controls, Capital Controls, and International Financial Markets / Alan C. Stockman, Alejandro Hernandez D..

Format:

Book

Author/Creator:

Stockman, Alan C.

Contributor:

National Bureau of Economic Research.

Hernandez D., Alejandro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1755.

NBER working paper series no. w1755

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Summary:

This paper examines the effects of restrictions on international financial markets. We analyze a general equilibrium, rational expectations model of a two-country world in which well-functioning international financial markets premit trade in all state-contingent securities except insofar as governments restrict these markets. The restrictions we examine take the form of taxes or quantitative controls on purchases of foreign currency and on the income from foreign assets. State-contingent financial markets allow households to allocate wealth optimally across states so that the imposition of exchange and capital controls has, roughly speaking, only substitution effects but no wealth effect. These restrictions reduce international trade in goods and lower ex-post welfare in the country in which they are imposed. Nominal prices and exchange rate are nonmonotonic functions of these restrictions.

Notes:

Print version record

October 1985.