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How the Machinery of International Finance Runs with Sand in its Wheels
Author(s) -
Reinhart Vincent R.
Publication year - 2000
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00206
Subject(s) - economics , monetary economics , capital flows , equity (law) , exchange rate , capital (architecture) , debt , external debt , database transaction , macroeconomics , finance , microeconomics , profit (economics) , programming language , archaeology , political science , computer science , law , history
The dramatic swings in international capital movements in recent years have renewed interest in restrictions on capital flows. This paper provides a model of international asset flows and domestic equity price formation incorporating three restrictions on capital flows. A transaction tax introduces significant asymmetries in the reaction of asset prices to financial and real shocks but has no long‐lived effects. Policies targeted to the level of net foreign debt by imposing a tax or outright controls do influence the steady‐state levels of the real exchange rate and relative equity prices.