Working Paper: CEPR ID: DP1061
Authors: Barry Eichengreen; Andrew K. Rose; Charles Wyplosz
Abstract: This paper provides evidence on the effects of capital controls. We show that controls have been associated with significant differences in macroeconomic behaviour, especially in monetary policy. While they have not prevented speculative attacks, they have provided the breathing space needed to organize orderly realignments. We also provide evidence on the channels through which speculative attacks operate, showing that bank lending to non-residents is a key transmission mechanism. We conclude with a discussion of measures that mimic some of the effects of controls as a way of easing the transition to European Monetary Union. Non-interest-bearing deposit requirements on lending to non-residents are proposed as a third-best route to monetary union.
Keywords: speculative attacks; EMS; exchange rates; exchange rate crisis
JEL Codes: F31; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital controls (F38) | budget deficits (H62) |
| capital controls (F38) | money growth rates (O42) |
| capital controls (F38) | policy autonomy (H77) |
| policy autonomy (H77) | orderly realignments during speculative attacks (F32) |
| capital controls (F38) | speculative attacks (D84) |
| bank lending to non-residents (F34) | effects of capital controls on macroeconomic stability (F32) |
| capital controls (F38) | balance of payments crises (F32) |
| noninterest-bearing deposit requirements (G28) | easing transition to EMU (F36) |