TY  - JOUR
AU  - Stockman,Alan C.
AU  - D.,Alejandro Hernandez
TI  - Exchange Controls, Capital Controls, and International Financial Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1755
PY  - 1989
Y2  - February 1989
UR  - http://www.nber.org/papers/w1755
L1  - http://www.nber.org/papers/w1755.pdf
N1  - Author contact info:
Alan C. Stockman
Department of Economics
University of Rochester
Rochester, NY  14627-0156
Tel: 585/275-7214
Fax: 585/256-2309
E-Mail: N/A user is deceased
AB  - This paper examines the effects of restrictions on international financial markets. We analyze a general equilibrium, rational expectations model of a two-country world in which well-functioning international financial markets premit trade in all state-contingent securities except insofar as governments restrict these markets. The restrictions we examine take the form of taxes or quantitative controls on purchases of foreign currency and on the income from foreign assets. State-contingent financial markets allow households to allocate wealth optimally across states so that the imposition of exchange and capital controls has, roughly speaking, only substitution effects but no wealth effect. These restrictions reduce international trade in goods and lower ex-post welfare in the country in which they are imposed. Nominal prices and exchange rate are nonmonotonic functions of these restrictions.
ER  -