Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127984
Authors: 
Nilsen, Jeffrey H.
Rovelli, Riccardo
Year of Publication: 
1999
Series/Report no.: 
Working Paper, Study Center Gerzensee 99.03
Abstract: 
Capital inflows have an enormous importance in the financing of investment in emerging and transition economies. However short-term inflows, intermediated by the banking sector of the emerging economy, may be subject to early withdrawals. We model a situation where such withdrawals are motivated by a change in either the domestic or the foreign fundamentals. We show that, for a given change in fundamentals, a reversal in the capital flows (and hence a currency crisis) is more likely the more risk averse are the foreign investors into the emerging economy. We also show that a policy to tax early withdrawals may discourage capital inflows which are more likely to give rise to fundamental runs, by helping to select relatively less risk averse investors. However, such a policy would have to be fine tuned in order not to discourage all capital inflows.
Subjects: 
Short-term capital inflows
Currency crisis
Financial Fragility
Chilean tax
JEL: 
G21
G28
O16
023
Document Type: 
Working Paper

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