Working Paper: NBER ID: w1253
Authors: Joshua Aizenman
Abstract: The purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy. This is done by comparing the adlustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that trade liberalization causes in the short run a larger drop in domestic goods prices and a smaller current account deficit in a regime with restricted convertibility. Similar results apply also for the long-run current account effects of the liberalization: they are smaller under financial restrictions.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | Domestic goods prices (P22) |
| Financial restrictions (H60) | Domestic goods prices (P22) |
| Financial restrictions (H60) | Current account deficit (F32) |
| Trade liberalization (F13) | Current account deficit (F32) |
| Financial restrictions (H60) | Effects of trade liberalization on current account (F32) |