| The present dissertation consists of two essays on capital controls and financial liberalization.; The first essay evaluates the experience of postwar Japanese capital controls from three viewpoints on the justification for a government to impose capital controls. The three viewpoints are: (1) protection of reserves, which emphasizes the role of the international liquidity constraint, (2) public finance, which focuses on the revenue side of the government policy, and (3) political economy, which takes political pressure for (or against) capital controls into account. The experience of Japan and the empirical evidence showed that the first approach, while most commonly referred to in the study of economics, has limited applicability. The second and the third approaches are instrumental in explaining the timing of the capital control deregulation in Japan.; The second essay studies the effect of the internationalization of a home currency on the interest rate and the exchange rate. Following Svensson's (1985) two country cash-in-advance framework, a model is developed to incorporate the internationalization of yen in terms of its increased use in invoicing imports. The role of transactions costs is also considered to analyze how they change the effects of the internationalization. To simulate the model, the two-country version of the method of Giovannini and Labadie (1989) was developed. The simulation result showed that the internationalization appreciates home currency and increases the domestic interest rate. Policy makers can counteract these effects by increasing transactions costs. |
