NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Controls and International Trade Finance

Alberto Giovannini, Jan Won Park

NBER Working Paper No. 3112
Issued in September 1989
NBER Program(s):   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w3112

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

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