Working Paper: CEPR ID: DP10019
Authors: Kris James Mitchener; Kirsten Wandschneider
Abstract: We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-in-differences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy.
Keywords: capital controls; financial crises; Great Depression; interwar gold standard
JEL Codes: E44; E61; F32; F33; F41; G15; N1; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital controls (F38) | capital outflows (F32) |
| capital controls (F38) | gold cover ratios (F31) |
| capital controls (F38) | macroeconomic recovery (E65) |
| capital controls (F38) | growth rate of industrial production (L16) |
| countries imposing capital controls (F38) | countries that floated their currencies (F31) |
| countries that initially stayed on gold (F33) | countries that abandoned it (P33) |
| capital control countries (F32) | aggressive expansionary monetary policies (E63) |