Abstract
This paper analyzes the liquidity effects generated by foreign exchange controls in a two-country, two-good, two-currency cash-in-advance world economy. Taxes on the purchases of foreign currency induce redistribution of liquidity in international financial markets which results in co-movements of macroeconomic aggregates in the two economies, fluctuations in exchange rates and interest rates, and changes in welfare of economic agents of each country. As the cash-in-advance constraints generate distortions in the world economy, there will be a welfare improvement if these controls relax the liquidity constraints.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
