Real exchange rate overshooting and capital controls in a crisis

J. Aizenman

Research output: Contribution to journalArticlepeer-review


This paper investigates the impact of a financial crisis on the attitude towards financial reforms, in an economy partially integrated with the global capital market. I identify conditions under which a crisis induces greater financial openness, mitigating the real exchange rate overshooting. The welfare gains from alleviating the shortage of funds in the sort run should be balanced with the cost of selling domestic equities at a discount. Even if the net gain from opening up the capital market is significant, it will exceed the gain from temporary capital control only if the FDI is associated with significant favourable productivity effects.

Original languageEnglish
Pages (from-to)417-428
Number of pages12
JournalJapanese Economic Review
Issue number4
StatePublished - 1 Jan 2001
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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