Domestic and Multilateral Effects of Capital Controls in Emerging Markets

54 Pages Posted: 12 Jan 2015

See all articles by Gurnain Kaur Pasricha

Gurnain Kaur Pasricha

Government of Canada - Bank of Canada

Matteo Falagiarda

University of Bologna - Department of Economics

Martin Bijsterbosch

European Central Bank (ECB)

Joshua Aizenman

University of Southern California - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

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.

Suggested Citation

Pasricha, Gurnain Kaur and Falagiarda, Matteo and Bijsterbosch, Martin and Aizenman, Joshua, Domestic and Multilateral Effects of Capital Controls in Emerging Markets (January 2015). NBER Working Paper No. w20822. Available at SSRN: https://ssrn.com/abstract=2548342

Gurnain Kaur Pasricha (Contact Author)

Government of Canada - Bank of Canada ( email )

Matteo Falagiarda

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Martin Bijsterbosch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Joshua Aizenman

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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