Capital Controls and Trade Liberalization in a Monetary Economy

Download or read book Capital Controls and Trade Liberalization in a Monetary Economy written by Mr.B. Jang and published by International Monetary Fund. This book was released on 1999-03-01 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reexamines Aizenman’s (1985) results on the effects of capital controls during unanticipated trade liberalization using an intertemporal optimizing monetary model. Unlike in Aizenman’s model, which is based on the currency substitution model, foreign money is an interest-bearing asset in this paper, and its major role is to smooth intertemporal consumption. With this modification, Aizenman’s results are reversed, thus showing that the effects of capital controls during trade liberalization would vary greatly depending on the role of foreign money in a country. The effects of an anticipated trade liberalization are also studied.