Capital Mobility and Exchange Market Intervention in Developing Countries

By Liliana Rojas-Suárez, Donald J Mathieson, Michael P. Dooley

November 1, 1996

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Format: Chicago

Liliana Rojas-Suárez, Donald J Mathieson, and Michael P. Dooley Capital Mobility and Exchange Market Intervention in Developing Countries, (USA: International Monetary Fund, 1996) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Official controls on interest rates and capital flows rule out the use of traditional interest rate parity conditions to measure changes in the degree of capital mobility confronting developing countries. This paper develops an alternative technique for measuring the cost of undertaking disguised capital flows when such official controls are present. This measure is derived from an intertemporal, optimizing model of an open economy incorporating the influence of the authorities’ foreign exchange market activities. The paper suggests that the real cost of undertaking disguised capital flows declined on average by nearly 70 percent between the early 1970s and the late 1980s.

Subject: Balance of payments, Capital controls, Capital flows, Currencies, Financial services, Interest rate parity, Monetary base, Money

Keywords: Capital controls, Capital flow, Capital flows, Currencies, Exchange market intervention, Holding, Interest rate parity, Intervention activity, Intervention function, Market-clearing interest rates, Monetary base, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/131
Stock No:

WPIEA1311996
ISBN:

9781451855234
ISSN:

1018-5941

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