CAPITAL CONTROLS AND INTERNATIONAL-TRADE FINANCE IN A DUAL EXCHANGE-RATE REGIME - THE BELGIAN EXPERIENCE POSTMORTEM

The purpose of the paper is to model ''leads and lags'' capital flows on the official segment of a dual exchange market and to examine the e ffects of various types of capital controls imposed by authorities on the official spot and forward exchange markets. The focus of the analy sis is the degree of insulation provided by a ''dual exchange market c um capital controls'' in face of a speculative crisis. The crucial var iables in this respect are the deviation from covered interest parity and the forward risk premium. Results of the theoretical model are con fronted with empirical evidence over the 1975-85 period.