Capital Account Liberalization as a Signal - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Capital Account Liberalization as a Signal

March 1996 Number 11

JEL classification: F21, C73

Authors: Leonardo Bartolini and Allan Drazen This paper presents a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, contingent on government attitudes toward taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a positive signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have recently liberalized their capital accounts.


The full text of this report is not available. For a published version of the report, see Leonardo Bartolini and Allan Drazen, "Capital-Account Liberalization as a Signal," American Economic Review 87, no. 1 (March 1997): 138-54.

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