Capital Controls and International Trade Finance

Alberto Giovannini and Jan Won Park

No 3112, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the effects of prohibiting individuals from holding foreign assets, and of allowing firms to trade in foreign assets only up to what is needed to finance export and import activities. Although firms can perform arbitrage between domestic and foreign financial markets, the distortions in asset markets are not fully arbitraged away but instead they are transmitted to domestic goods market. The paper discusses the effects of shocks in foreign financial markets and in domestic fiscal policy. We show that the dynamics and steady states are crucially affected by capital controls.

Date: 1989-09
Note: ITI IFM
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Citations: View citations in EconPapers (3)

Published as Journal of International Economics, Volume 33, No.3/4, pp. 285-304 November 1992

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