Trade Reform under Partial Currency Convertibility: Some Suggestive Results

The macroeconomic implications of trade reform in the presence of capital account restrictions are discussed. Such restrictions are modeled by recognizing the prior constraints on free currency convertibility that are imposed under a multiple exchange rate system. The results indicate that the preferred sequence of liberalization need not be of the commonly advocated "current account first" variety, and that real depreciation rather than real appreciation is a more probable outcome following domestic tariff liberalization.