Self-Fulfilling Expectations, Speculative Attack, and Capital Controls

Harris Dellas () and Alan Stockman

Journal of Money, Credit and Banking, 1993, vol. 25, issue 4, 721-30

Abstract: This paper examines the endogenous implementation of capital controls in the context of a fixed exchange rate regime. It is shown that if there exists a nonzero probability that the policymaker's response to a significant decrease in official foreign reserves will be the introduction of controls, a speculative attack may occur even when current and expected monetary policy is consistent with a permanently viable, control-free, fixed exchange rate regime. Consequently, capital controls may be the outcome of self-fulfilling expectations rather than the result of imprudent economic policies. Copyright 1993 by Ohio State University Press.

Date: 1993
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Related works:
Working Paper: SELF-FULLFILLING EXPECTATIONS, SPECULATIVE ATTACKS AND CAPITAL CONTROLS (1988)
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