Working Paper: NBER ID: w20822
Authors: Gurnain Pasricha; Matteo Falagiarda; Martin Bijsterbosch; Joshua Aizenman
Abstract: Using a novel, high frequency dataset on capital control actions in 16 emerging market economies (EMEs) from 2001 to 2012, we provide new insights into the domestic and multilateral effects of capital controls. Increases in capital account openness reduce monetary policy autonomy and increase exchange rate stability, confirming the constraints of the monetary policy trilemma. Both gross in- and outflows rise, while the effect on net capital flows is ambiguous. Tighter capital inflow restrictions generated significant spillovers, especially in the post-2008 environment of abundant global liquidity. We also find evidence of a domestic policy response to foreign capital control changes in countries that are affected by these spillovers.
Keywords: capital controls; emerging markets; monetary policy trilemma; spillover effects; international capital flows
JEL Codes: F32; F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital account openness (F30) | monetary policy autonomy (E58) |
| capital account openness (F30) | exchange rate stability (F31) |
| capital account openness (F30) | exchange rate volatility (F31) |
| monetary policy autonomy (E58) | exchange rate stability (F31) |
| capital controls (F38) | gross capital inflows (F21) |
| capital controls (F38) | gross capital outflows (F21) |
| tighter capital inflow restrictions (F32) | spillover effects (F69) |
| capital control policies (F38) | cross-border effects (F55) |