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The Effects of Capital Controls on Exchange Rate Volatility and Output

Author

Listed:
  • M. Frenkel
  • G. Shimidt
  • G. Stadtmann
  • Nickle Christiane

Abstract

This paper extends the Dornbusch model of overshooting exchange rates to discuss both exchange rate and output effects of capital controls that involve additional costs for International asset transactions.We show that, on the one hand, such capital controls have the merit of reducing the volatility of exchange rate volatility in the sort run and induces costs for the real sector in the form of lower equilibrium output levels. [F32, F41]

Suggested Citation

  • M. Frenkel & G. Shimidt & G. Stadtmann & Nickle Christiane, 2002. "The Effects of Capital Controls on Exchange Rate Volatility and Output," International Economic Journal, Taylor & Francis Journals, vol. 16(4), pages 27-51.
    • Handle: RePEc:taf:intecj:v:16:y:2002:i:4:p:27-51
    DOI: 10.1080/10168730200000027
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    Cited by:

    1. Ferdinand Owoundi & Jacques Landry Bikai, 2021. "On the neutrality of the exchange rate regime regarding real misalignments: Evidence from sub‐Saharan Africa," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 327-345, July.
    2. Cantú, Carlos, 2019. "Effects of capital controls on foreign exchange liquidity," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 201-222.
    3. Chokri Zehri, 2020. "The Domestic Impacts And Spillovers Of Capital Controls," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(227), pages 31-66, October –.
    4. Zhitao Lin & Jinzhao Chen & Xingwang Qian, 2022. "Capital controls and the volatility of the renminbi covered interest deviation," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 205-236, February.
    5. Bergman, U. Michael & Jellingsø, Mads, 2010. "Monetary policy during speculative attacks: Are there adverse medium term effects?," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 5-18, March.

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