The Effectiveness of Capital Controls

56 Pages Posted: 31 Jul 2019

Date Written: November 6, 2018


The goal of this work is a systematic analysis of the effectiveness of capital controls in reducing the volume of capital flows and the probability of extreme events (surges and flights), strengthening financial stability and affecting the exchange rate. We find that controls significantly reduce capital flows, even though the effectiveness varies across economies and types of investment. Moreover capital controls tend to reduce the probability of extreme episodes. With regard to financial stability objectives, controls on banking inflows reduce domestic credit growth, but this effect is mainly driven by advanced economies. Controls on capital inflows reduce the share of domestic loans denominated in foreign currency. Finally, our estimates suggest that capital controls on inflows tend to be associated with an undervalued exchange rate only in emerging market economies.

Keywords: international capital flows, capital controls, prudential tools

JEL Classification: F21, F32, G11

Suggested Citation

Nispi Landi, Valerio and Schiavone, Alessandro, The Effectiveness of Capital Controls (November 6, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1200, Available at SSRN: or

Valerio Nispi Landi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Alessandro Schiavone

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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