ECB paper finds capital controls can increase stock price volatility
A tax on cross-border transactions applied on capital inflows to both bond and stock markets can stabilise currency markets but amplify volatility in stock markets, according to a new working paper published by the European Central Bank.
Capital Controls and International Financial Stability – a Dynamic General Equilibrium Analysis in Incomplete Markets, by Adrian Buss, creates a model in which each country's financial market consists of a risk-free bond and a risky stock. Foreign investors
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