Capital control and exchange rate volatility

Shikuan Chen and Ming-Jen Chang

The North American Journal of Economics and Finance, 2015, vol. 33, issue C, 167-177

Abstract: The study offers one conceptual and theoretical framework for evaluating the economic effects of a trading tax on foreign exchange transactions. Taxes and the price stickiness mechanism are taken into account in the model. When prices are flexible, full monetary neutrality can be obtained even in the short-term. Intuitively, taxes on foreign exchange transactions discourage speculation by rising currency trading costs, and, thus, increase the stability of the exchange rate. Finally, the results show that not only the exchange rate but consumption, investment and employment will become less volatile by imposing trading taxes on foreign exchange transactions.

Keywords: Capital control; Exchange rate volatility; Open economy macroeconomics; Tobin tax (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:33:y:2015:i:c:p:167-177

DOI: 10.1016/j.najef.2015.04.005

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