Capital Mobility and Exchange Market Intervention in Developing Countries / Michael P. Dooley, Donald J. Mathieson, Liliana Rojas-Suarez.

Format:

Book

Author/Creator:

Dooley, Michael P.

Contributor:

Mathieson, Donald J.

Rojas-Suarez, Liliana.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6247.

NBER working paper series no. w6247

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

This paper develops a new technique for measuring changes in the degree of capital mobility confronting a developing country that has restrictions on capital flows and official ceilings on domestic interest rates. Because such official controls rule out the use of traditional interest rate parity conditions to measure changes in the degree of capital mobility, the analysis first examines an intertemporal model of an open economy. This model describes the linkages between the cost of undertaking disguised capital flows, the current account, capital controls, domestic and external financial market conditions, and the authorities' foreign exchange market interventions. The model suggests a means of measuring changes in the cost of undertaking disguised capital flows, based on the past history of differentials between external interest rates (adjusted for exchange rate changes) and domestic ceiling interest rates, provided that the authorities' foreign exchange market activities are incorporated into the analysis. Parameter estimates for Korea, Mexico, and the Philippines indicate that the real cost of undertaking disguised capital flows declined on average by nearly 70 percent between the early 1970s and the late 1980s.

Notes:

Print version record

October 1997.