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Title: |
The Effects of Capital Controls on Exchange
Rate Volatility and Output |
| Author: |
Frenkel, M |
| Author
Affiliation: |
WHU Koblenz |
| Source: |
International Economic Journal, Winter 2002, v. 16, no. 4, pp. 27-51 |
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Publication Date: |
Winter 2002 |
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Abstract: |
This paper
extends the Dornbusch model of overshooting exchange rates to discuss
both exchange rate and output effects of capital controls that involve
additional costs for international asset transactions. We show that, on
the one hand, such capital controls have the merit of reducing the
volatility of exchange rates following a monetary shock. On the other
hand, the implementation increases exchange rate volatility in the short
run and induces costs for the real sector in the form of lower
equilibrium output levels. |
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