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Capital mobility and exchange market intervention in developing countries

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  • Capital mobility and exchange market intervention in developing countries
  • Dooley, Michael P.; Mathieson, Donald J.; Rojas-Suarez, Liliana
  • National Bureau of Economic Research


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Title Capital mobility and exchange market intervention in developing countries
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Material Type Reports
Author(English)

Dooley, Michael P.; Mathieson, Donald J.; Rojas-Suarez, Liliana

Publisher

Cambridge:National Bureau of Economic Research

Date 1997-10
Series Title; No NBER Working Paper Series / 6247
Pages 62
Subject Country Mexico(Americas)
Philippines(Asia and Pacific)
South Korea(Asia and Pacific)
Language English
File Type Link
Original Format pdf
Subject Economy < Financial Policy
Holding National Bureau of Economic Research

Abstract

This paper develops a new technique for measuring changes in the degree of capital mobility confronting a developing country that has restrictions on capital flows and official ceilings on domestic interest rates. Because such official controls rule out the use of traditional interest rate parity conditions to measure changes in the degree of capital mobility, the analysis first examines an intertemporal model of an open economy. This model describes the linkages between the cost of undertaking disguised capital flows, the current account, capital controls, domestic and external financial market conditions, and the authorities' foreign exchange market interventions. The model suggests a means of measuring changes in the cost of undertaking disguised capital flows, based on the past history of differentials between external interest rates (adjusted for exchange rate changes) and domestic ceiling interest rates, provided that the authorities' foreign exchange market activities are incorporated into the analysis. (The rest omitted)