Capital account liberalization as a signal
Abstract: This paper presents a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, contingent on government attitudes toward taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a positive signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have recently liberalized their capital accounts.
Status: Published in American Economic Review 87, no. 1 (March 1997): 138-54
File(s): File format is text/html https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr11.html
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 1996