Short and Long-Run Integration: Do Capital Controls Matter?

52 Pages Posted: 29 Sep 2017

See all articles by Graciela Kaminsky

Graciela Kaminsky

National Bureau of Economic Research (NBER); George Washington University - Department of Economics

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: August 31, 2001


The authors study whether capital controls affect the link between domestic and foreign stock market prices and interest rates. To examine the characteristics of international market integration and the effects of capital controls in the short and long run, they apply band-pass filter techniques to data from six emerging economics during the 1990s. They find that markets seem to be linked more at longer horizons. Equity prices seem to be more connected internationally than interest rates. They also find little evidence that controls effectively segment domestic markets from foreign markets. And when they do, the effects seem to be short-lived. Moreover, the effects of controls on outflows do not seem to differ from those of controls on inflows. For example, controls on outflows in Venezuela during the 1994 crisis, and unremunerated reserve requirements in Chile and Colombia during a capital-inflow episode, seem to have shielded domestic markets at the most at very high frequencies. The degree of financial sophistication does not seem to affect the authors' conclusion on the insulation provided by capital controls. True, more developed financial markets, such as those in Brazil, are more closely linked to international markets than those in Colombia and Venezuela, which are far more illiquid. But capital controls do not seem to provide an extra cushion against international spillovers even in less developed markets.

Keywords: Macroeconomic Management, Fiscal & Monetary Policy, Financial Economics, Economic Theory & Research, Banks & Banking Reform, International Terrorism & Counterterrorism, Capital Markets and Capital Flows

Suggested Citation

Kaminsky, Graciela and Schmukler, Sergio, Short and Long-Run Integration: Do Capital Controls Matter? (August 31, 2001). World Bank Policy Research Working Paper No. 2660. Available at SSRN:

Graciela Kaminsky (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Washington University - Department of Economics ( email )

Monroe Hall
2115 G Street, NW
Washington, DC 20052
United States
202-994-6686 (Phone)
202-994-6147 (Fax)


Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)


Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics