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Convertibility, Currency Controls and the Cost of Capital in Western Europe, 1950-1999

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Author Info
Hans Joachim Voth ()

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Abstract

For most of the postwar period, Europe’s capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using the familiar event-study methodology, we examine the extent to which restrictions of current and capital account convertibility affected stock returns. We find that the delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings demonstrate that the introduction of capital controls can impose significant costs.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 552.

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Date of creation: May 2001
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Handle: RePEc:upf:upfgen:552

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Cost of capital; liberalization; current account; capital account; convertibility;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-

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  20. Richard C. Marston, 1993. "Interest Differentials under Bretton Woods and the Post-Bretton Woods Float: The Effects of Capital Controls and Exchange Risk," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 515-546 National Bureau of Economic Research, Inc. [Downloadable!]
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    Other versions:
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