Pasricha, Gurnain Kaur (2008): Imperfect Competition in Financial Markets and Capital Controls: A Model and a Test.
Download (303kB) | Preview
This paper explores the implications of financial repression, specifically, imperfect competition in the financial sector and capital controls for equilibrium interest rates and current account imbalances; and the implications of liberalization. I find that (1) interest differentials between home and foreign markets exist and are higher the fewer the number of domestic financial institutions (2) liberalization of the domestic financial sector - i.e. increasing the number of players - exacerbates current account imbalances in growing economies and reduces revenues from repression (3) revenues from financial repression decline when capital controls become porous (which may be a consequnce of trade liberalization), making liberalization of domestic financial sector more palatable to the domestic governments. An empirical exercise validates several predictions of the model.
|Item Type:||MPRA Paper|
|Original Title:||Imperfect Competition in Financial Markets and Capital Controls: A Model and a Test.|
|Keywords:||Financial Repression; Capital Controls; Imperfect Competition in Financial Markets; Domestic Financial Liberalization; Interest Differentials|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Gurnain Pasricha|
|Date Deposited:||13. Dec 2008 06:35|
|Last Modified:||30. Apr 2015 23:49|
 Aizenman, J. 2008. On the Hidden Links between Financial and Trade Opening. Journal of International Money and Finance 27, 372-86.
 Bernhard, W., Leblang, D., 1999. Democratic Institutions and Exchange-Rate Commitments. International Organization 53 (1), 71-97.
 Boyce, J.K., Ndikumana, L., 2001. Is Africa a net creditor? New estimates of capital flight from severely indebted sub-Saharan African countries, 1970-1996. Journal of Development Studies 38 (2), 27- 56.
 Chamon, M., Prasad, E., 2007. Why are Saving Rates of Urban Households in China Rising? IZA discussion Paper No. 3191.
 Chinn, M., 2006. The (Partial) Rehabilitation Of Interest Rate Parity In Floating Rate Era: Longer Horizons, Alternative Expectations And Emerging Markets. Journal Of International Money And Finance 25, 7-21
 Chinn, M., Ito, H., 2006. What matters for Financial Development? Capital Controls, Institutions, and Interactions. Journal of Development Economics, 81(1), 163-92.
 Chinn, M.D., Meredith, G., 2004. Monetary Policy And Long Horizon Uncovered Interest Parity. IMF Staff Papers 51 (3), 409-430.
 Chou, Shin-Yi, Jin-Tan Liu, and James K. Hammitt, 2003, National Health Insurance and Precautionary Saving: Evidence from Taiwan Journal of Public Economics, 87(9-10), 1873-94.
 Claessens, S., Naude D., 1993. Recent Estimates of Capital Flight. Policy Research Working Papers, WPS 1186. World Bank, Washington, DC.
 Collier, P., Hoeffler, A., Pattillo, C., 2001. Flight Capital as a Portfolio Choice. World Bank Economic Review 15(1), pp. 5580
 Eichengreen, B., 2001.Capital Account Liberalization: What do Cross-Country Studies Tell Us? The World Bank Economic Review, 15(3) 341-365.
 Espinosa, M., Yip, C.K., 1996. ”An endogenous growth model of money, banking, and financial repression,” Working Paper 96-4, Federal Reserve Bank of Atlanta.
 Giovannini, A., de Melo, M., 1993. Government revenue from financial repression. American Economic Review 83 (4), 953-963.
 Gourinchas, P., Jeanne, O., 2006. The Elusive Gains from International Financial Integration, Review of Economic Studies, 73(3), 715-741.
 Henry, P.B., 2007. Capital Account Liberalization: Theory, Evidence, and Speculation. Stanford University CDDRL Working Paper No. 72
 Jinjarak, Y., 2006. Adis Government Revenue from Financial Repression: More on the Consequences of Financial and Trade Integration. NTU Working Paper.
 Kletzer, K., Kohli, R., 2001. Financial Repression and Exchange Rate Management in Developing Countries: Theory and Empirical Evidence for India. IMF Working Paper 01/103.
 Lane, P., Milesi-Ferretti, G.M., 2006. The External Wealth Of Nations: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004. IMF Working Paper No. 69, March 2006.
 McKinnon, R. I. (I973). Money and Capital in Economic Development. Washington, D.C.: Brookings Institution.
 Pasricha, G.K., 2008. Financial Integration in Emerging Market Economies. University of California, Santa Cruz, Department of Economics Working Paper No. 641, May 2008.
 Prasad, E. , Rajan. R.G., 2008. A Pragmatic Approach to Capital Account Liberalization. Journal of Economic Perspectives, 22 (3), 149-172
 Roubini, N., Sala-i-Martin, X., 1995. A Growth Model of Inflation, Tax Evasion and Financial Repression. Journal of Monetary Economics, 35, 275-301.
 Shaw, E. S. (I973). Financial Deepening in Economic Development, New York: Oxford University Press.
 Singh, M., Banerjee, A., 2006. Testing Real Interest Parity in Emerging Markets. IMF Working Paper No. 249
 Vieria, I. 2003. Evaluating Capital Mobility In The EU: A New Approach Using Swaps Data. The European Journal Of Finance, 9, 214-232.