CIAO DATE: 01/2013
September 2012
Peterson Institute for International Economics
This paper presents a simple model of how a small open economy can undervalue its real exchange rate using its capital account policies. The paper presents several properties of such policies, and proposes a rule of thumb to assess their welfare cost. The model is applied to an analysis of Chinese capital account policies.
Resource link: Capital Account Policies and the Real Exchange Rate [PDF] - 699K