Are Capital Controls Prudential? An Empirical Investigation

34 Pages Posted: 23 Nov 2013 Last revised: 2 Apr 2021

See all articles by Andrés Fernàndez

Andrés Fernàndez

Inter-American Development Bank (IDB) - Research Department

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Martín Uribe

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: November 2013

Abstract

A growing recent theoretical literature advocates the use of prudential capital control policy, that is, the tightening of restrictions on cross-border capital flows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no movements in capital controls. These results are robust to decomposing boom-bust episodes along a number of dimensions, including the level of development, the level of external indebtedness, or the exchange-rate regime. We also document a near complete acyclicality of capital controls during the Great Contraction of 2007-2009.

Suggested Citation

Fernandez, Andres and Rebucci, Alessandro and Uribe, Martin, Are Capital Controls Prudential? An Empirical Investigation (November 2013). NBER Working Paper No. w19671, Available at SSRN: https://ssrn.com/abstract=2358763

Andres Fernandez (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

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Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Martin Uribe

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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