Estimated Policy Rules for Capital Controls

61 Pages Posted: 7 Jul 2020

Date Written: June 2020


This paper borrows the tradition of estimating policy reaction functions from monetary policy literature to ask whether capital controls respond to macroprudential or mercantilist motivations. I explore this question using a novel, weekly dataset on capital control actions in 21 emerging economies from 2001 to 2015. I introduce a new proxy for mercantilist motivations: the weighted appreciation of an emerging-market currency against its top five trade competitors. This proxy Granger causes future net initiations of non-tariff barriers in most countries. Emerging markets systematically respond to both mercantilist and macroprudential motivations. Policymakers respond to trade competitiveness concerns by using both instruments-inflow tightening and outflow easing. They use only inflow tightening in response to macroprudential concerns. Policy is acyclical to foreign debt; however, high levels of this debt reduces countercyclicality to mercantilist concerns. Higher exchange rate pass-through to export prices, and having an inflation targeting regime with non-freely floating exchange rates, increase responsiveness to mercantilist concerns.

JEL Classification: F3, F4, F5, G00, G1, O24, E52, E01, F13

Suggested Citation

Pasricha, Gurnain Kaur, Estimated Policy Rules for Capital Controls (June 2020). IMF Working Paper No. 20/80, Available at SSRN:

Gurnain Kaur Pasricha (Contact Author)

International Monetary Fund ( email )

United States

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