A higher financial premium leads to the depletion of foreign reserves?

Fuhmei Wang ()
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Fuhmei Wang: National Cheng Kung University, Taiwan

Journal of Developing Areas, 2014, vol. 48, issue 3, 77-93

Abstract: Previous literature believes that a commercial depreciation is associated with higher financial premium and more depletion of foreign reserves. This study re-investigates this belief. Analytical results indicate that a commercial depreciation with higher financial premium and more depletion of foreign reserves depend on the combined influences of the conditions that individuals are impatient as well as foreign interest rates are bigger than time preference rates rather than only policies of commercial depreciation. Non-distortion taxation does not solve the balance-of-payments difficulties. An exact negative relationship between foreign reserves and the financial premium cannot be found.

Keywords: Leakages; Taxation; Dual Exchange Markets (search for similar items in EconPapers)
JEL-codes: F32 F33 F41 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.48:year:2014:issue3:pp:77-93

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