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Title:Capital controls, exchange rate volatility and risk premium PDF Logo
Authors:Frenkel, Michael
Stadtmann, Georg
Issue Date:2002
Series/Report no.:Research notes working paper series 5
Abstract:Capital controls lower the variability of the exchange rate and reduce the risk premium as well as the domestic interest rate. On the other hand, capital controls reduce the number of noise traders and, therefore, the risk-bearing capacity of the market, leading to higher interest rates and a lower growth potential of the economy. The identification of these two effects which work in opposite directions are the result of a study on the effect of capital controls on the exchange rate, the domestic interest rate, and the microstructure of the foreign exchange market in a small open economy.
Subjects:Capital Controls
Capital Flows
Risk Premium
Document Type:Working Paper
Appears in Collections:Research Notes, Deutsche Bank Research

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