TY  - JOUR
AU  - Dooley,Michael P.
AU  - Mathieson,Donald J.
AU  - Rojas-Suarez,Liliana
TI  - Capital Mobility and Exchange Market Intervention in Developing Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6247
PY  - 1997
Y2  - October 1997
UR  - http://www.nber.org/papers/w6247
L1  - http://www.nber.org/papers/w6247.pdf
N1  - Author contact info:
Michael P. Dooley
Department of Economics
Engineering II
University of California, Santa Cruz
Santa Cruz, CA 95064
Tel: 831/459 3662
Fax: 831/459-5077
E-Mail: MPD@UCSC.EDU
AB  - This paper develops a new technique for measuring changes in the degree of capital mobility confronting a developing country that has restrictions on capital flows and official ceilings on domestic interest rates. Because such official controls rule out the use of traditional interest rate parity conditions to measure changes in the degree of capital mobility, the analysis first examines an intertemporal model of an open economy. This model describes the linkages between the cost of undertaking disguised capital flows, the current account, capital controls, domestic and external financial market conditions, and the authorities' foreign exchange market interventions. The model suggests a means of measuring changes in the cost of undertaking disguised capital flows, based on the past history of differentials between external interest rates (adjusted for exchange rate changes) and domestic ceiling interest rates, provided that the authorities' foreign exchange market activities are incorporated into the analysis. Parameter estimates for Korea, Mexico, and the Philippines indicate that the real cost of undertaking disguised capital flows declined on average by nearly 70 percent between the early 1970s and the late 1980s.
ER  -