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Abstract

In recent years, many developing countries have intervened in foreign exchange markets to offset tosome extent the effect on their economies of large capital flows. Often, changes in reserve requirementswere used to mitigate the impact of that intervention on domestic money supplies. Because reserverequirements are a tax, however, changes in reserve requirements can have real effects. This paper showsthat the exact implications for output, the real exchange rate, and the capital and current accounts dependimportantly on who-whether depositors or borrowers-pays the tax. In any case, foreign exchangeintervention matched by changes in reserve requirements that keep the money supply fixed do influencethe exchange rate in the short and, sometimes, the long run. The recent experiences of ten developingcountries establish that, while the incidence of the tax varies considerably across countries and time, bothdeposit and lending rates of interest respond to changes in reserve requirements.



Item Type: MPRA Paper -

Original Title: On the use of reserve requirements in dealing with capital flow problems-

Language: English-

Keywords: capital flows countercyclical policies capital mobility reserve requirements-

Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and FinanceF - International Economics > F3 - International FinanceE - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit-





Autor: Reinhart, Carmen

Fuente: https://mpra.ub.uni-muenchen.de/13703/



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