Working Paper: NBER ID: w11973
Authors: Nicolas Magud; Carmen M. Reinhart
Abstract: The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is not unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology -- furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies only in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia.
Keywords: Capital Controls; Macroeconomic Policy; International Finance
JEL Codes: F21; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital controls on inflows (F38) | monetary policy independence (E58) |
| Capital controls on inflows (F38) | composition of capital flows towards longer maturities (F32) |
| Capital controls on inflows (F38) | real exchange rate pressures (F31) |
| Capital controls on inflows (F38) | net capital flows (F32) |
| Capital controls on outflows (F38) | reduction of outflows (F32) |
| Capital controls on outflows (F38) | independent monetary policy (E58) |