I study the effect of a temporary budget deficit, which is financed in the international capital market, on the exchange rate. First, I show that the exchange rate depreciates both in the short and in the long run if the government finances the deficit by selling debt denominated in foreign...

This paper focuses on two countries, Japan and the United States, to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using...

This paper shows that governments’, rather than individuals’, inhibitions are the only source of segmentation in international capital markets. The paper specifically focuses on two countries, Japan and the U.S., to test the integration of international capital markets. In Japan, the...