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Foreign exchange reserves as a tool for capital account management

Davis, J. Scott; Fujiwara, Ippei; Huang, Kevin X.D.; Wang, Jiao


Recent theoretical papers argue that countries can insulate themselves from volatile world capital flows by using a variable tax on foreign capital as an instrument of monetary policy. But empirical papers argue that we rarely observe these cyclical capital flow taxes used in practice. We construct a small open economy model where the central bank engages in sterilized foreign exchange intervention. When private agents freely trade foreign bonds, sterilized intervention has no effect. But we...[Show more]

CollectionsANU Research Publications
Date published: 2020
Type: Journal article
Source: Journal of Monetary Economics
DOI: 10.1016/j.jmoneco.2020.02.006


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