Capital Controls and the International Transmission of U.S. Money Shocks
59 Pages Posted: 22 Nov 2003
Date Written: July 10, 2003
In this paper we assess whether capital controls effectively insulate countries from U.S. monetary shocks, looking simultaneously at a large range of country experiences in a unified estimation framework. We estimate the effect of identified U.S. monetary shocks on the exchange rate and foreign country interest rates, and test whether countries with less open capital accounts exhibit systematically smaller responses. We find essentially no evidence in favor of this notion. Other country factors such as the exchange rate regime or degree of dollarization explain more of the cross-country differences in responses. The significant differences in responses we do find are more pronounced at short horizons.
Keywords: Capital account, international debt, short-term capital
JEL Classification: F32, F34
Suggested Citation: Suggested Citation