Dollar Clamp for Beginners
Keywords:
Dollar Clamp, Imports , Exports, Pesos, DistortionsAbstract
This paper models the effects of restrictions on access to the foreign exchange market known as the “dollar clamp” (capital controls). In our modeling, the dollar clamp operates in two ways. On the one hand, as a tax on exports combined with a subsidy on imports, on the other hand, as a mechanism to encourage the holding of pesos. The model replicates the movements observed in the exchange rate gap, prices, activity and exports that are observed when installing or lifting a dollar clamp. The common element in all the specifications analyzed is that dollar clamp produces welfare-reducing distortions.
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