We study the transmission and third-country effects of international sanctions. A sanctioned country’s losses are mitigated, and the sanctioning country’s losses amplified, if a third country does not join the sanctions, but the third country benefits from not joining.
We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).
