Home » The Effects of Capital Controls on Exchange Rate Volatility and Output by Michael Frenkel
The Effects of Capital Controls on Exchange Rate Volatility and Output Michael Frenkel

The Effects of Capital Controls on Exchange Rate Volatility and Output

Michael Frenkel

Published November 1st 2001
ISBN : 9786613796998
ebook
30 pages
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 About the Book 

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 capitalMoreThis 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 rates following a monetary shock. On the other hand, the implementation increases exchange rate volatility in the short run and induces costs for the real sector in the form of lower equilibrium output levels.