Authors: Somrasri Yuphoi and Huang Xianguo
Many emerging economies have been experienced a fast growing portfolio capital inflow in the recent years, especially, after the global crisis 2008, accompanied with unwelcomed currency appreciation and potential future quick reversal of inflow. The authorities concerned have implemented various measures and consider alternatives to curb such kind of capital inflow. This paper constructs a small country general equilibrium model with endogenous interest rate for the purpose of analyzing the effects of one of fiscal policies - taxation on asset market and its policy effects on exchange rate as well as all other endogenous variables. The effect to capital flows can be estimated through empirical equation between model variables and capital flows.
Keywords: capital control; tax on asset market; exchange rate dynamics; fiscal policy