Capital Controls and Trade Liberalization in a Monetary Economy

Author/Editor:

B. Jang

Publication Date:

March 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper reexamines Aizenman’s (1985) results on the effects of capital controls during unanticipated trade liberalization using an intertemporal optimizing monetary model. Unlike in Aizenman’s model, which is based on the currency substitution model, foreign money is an interest-bearing asset in this paper, and its major role is to smooth intertemporal consumption. With this modification, Aizenman’s results are reversed, thus showing that the effects of capital controls during trade liberalization would vary greatly depending on the role of foreign money in a country. The effects of an anticipated trade liberalization are also studied.

Series:

Working Paper No. 1999/024

Subject:

Balance of payments Capital controls Consumption Demand for money Exchange rates Foreign exchange International trade Money National accounts Trade liberalization

English

Publication Date:

March 1, 1999

ISBN/ISSN:

9781451844122/1018-5941

Stock No:

WPIEA0241999

Pages:

24

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