The Effectiveness of Macroprudential Policies and Capital Controls Against Volatile Capital Inflows

33 Pages Posted: 11 Jun 2020

See all articles by Jon Frost

Jon Frost

Bank for International Settlements; University of Cambridge - Cambridge Centre for Alternative Finance

Hiro Ito

Portland State University - Department of Economics

René van Stralen

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: June 5, 2020

Abstract

This paper compares the effectiveness of macroprudential policies (MaPs) and capital controls (CCs) in influencing the volume and composition of capital inflows, and the probability of banking and currency crises. We distinguish between foreign exchange (FX)-based MaPs, which may be similar to some types of CCs, and non-FX-based MaPs. Using a panel of 83 countries over the period 2000-17, and a propensity score matching model to control for selection bias, we find that capital inflow volumes are lower where FX-based MaPs have been activated. The imposition of CCs does not have a significant effect on the volume or composition of capital inflows. Further, we find that the activation of MaPs is associated with a lower probability of banking crises and surges in capital inflows in the following three years.

Keywords: capital account openness, capital flows, capital controls, macroprudential policy banking crises; currency crises

JEL Classification: F38, G01, G28

Suggested Citation

Frost, Jon and Ito, Hiro and van Stralen, René, The Effectiveness of Macroprudential Policies and Capital Controls Against Volatile Capital Inflows (June 5, 2020). De Nederlandsche Bank Working Paper No. 686, Available at SSRN: https://ssrn.com/abstract=3623036 or http://dx.doi.org/10.2139/ssrn.3623036

Jon Frost (Contact Author)

Bank for International Settlements ( email )

Basel
Switzerland

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

Hiro Ito

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)

HOME PAGE: www.econ.pdx.edu

René Van Stralen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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