Report

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.

Keywords: Accounting; Capital movements;

Status: Published in American Economic Review 87, no. 1 (March 1997): 138-54

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 1996

Number: 11