The effect of capital controls on interest rate differentials

• 成果类型: Article
• 署名作者: Herrera, LO; Valdés, RO
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/S0022-1996(00)00054-4
• 发表日期: 2001
• 页码: 385-398
• 关键词: interest rate differentials; capital controls

摘要

In this paper we present a model of international interest rate arbitrage under conditions of entry and exit costs to and from the domestic capital market. We seek to measure the maximum potential effect of capital controls, such as non-interest paying reserve requirements, on interest rate differentials. We quantify the effect of such taxes using a dynamic optimization model with uncertainty and transaction costs. An optimal (S,s) rule gives the limits for interest rate differentials that trigger capital inflows and outflows. We also calculate maximum interest rate differentials for various maturities and study the effect of parameter changes. Using parameters estimated for the Chilean economy, the model shows that the effect of capital controls on interest rate differentials is considerably smaller than what static calculations suggest. (C) 2001 Elsevier Science B.V. All rights reserved.