An Assessment of Another Decade of Capital Controls in Colombia: 1998-2008

46 Pages Posted: 6 Aug 2008 Last revised: 2 Sep 2011

See all articles by Alvaro Concha

Alvaro Concha

affiliation not provided to SSRN

Arturo José Galindo

Inter-American Development Bank

Diego M Vasquez

Central Bank of Colombia

Date Written: July 1, 2011

Abstract

We explore the effectiveness of capital controls in Colombia. We analyze the impact of administrative restrictions to capital flows on aggregate capital flows, the composition of capital flows, the real exchange rate, and economic activity using restricted versions of vector error correction models (VEC) that control for exogenous global financial conditions. The models are estimated using monthly data ranging from August of 1998 to May of 2008. In addition we estimate GARCH models to identify if capital controls have had relevant impacts on the volatility of the nominal exchange rate and of other relevant asset prices. These models are estimated using weekly data covering the same time period. Results suggest that the capital controls used since 1998 have been ineffective in reducing capital flows and the trend of the Colombian peso to appreciate. In addition there is no evidence suggesting a change in the composition of capital flows induced by capital controls. We find some evidence in favor of capital controls reducing nominal exchange rate volatility at high frequencies.

Keywords: Capital controls, capital flows, Colombia, reserve requirement, exchange rates

JEL Classification: F21, F30, F32, F41

Suggested Citation

Concha, Alvaro and Galindo, Arturo José and Vasquez, Diego M, An Assessment of Another Decade of Capital Controls in Colombia: 1998-2008 (July 1, 2011). Available at SSRN: https://ssrn.com/abstract=1201878 or http://dx.doi.org/10.2139/ssrn.1201878

Alvaro Concha

affiliation not provided to SSRN ( email )

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Diego M Vasquez

Central Bank of Colombia ( email )

Carrera 7 #14-78
Bogota
Colombia

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