Capital Account Liberalization as a Signal

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Federal Reserve Bank of New York, 1996 - Banks and banking, Central - 46 pages
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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 towards taxation of capital. When there is uncertainly over government typos, a policy of liberal capital outflows sends a positive signal that may trigger a capital outflow. This prediction is consistent with the experience of several countries that have recently liberalized their capital account.

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