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Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia

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  • Natalia T. Tamirisa

Abstract

This paper examines how the macroeconomic effects of capital controls vary depending on which type of international financial transaction they cover. Drawing on Malaysia''s experiences in regulating the capital account during the 1990s, it finds, in an error-correction model, that capital controls generally have statistically insignificant effects on the exchange rate. Controls on portfolio outflows and on bank and foreign exchange operations facilitate reductions in the domestic interest rate, while controls on portfolio inflows have the opposite effect, in line with the theoretical priors. Controls on international transactions in the domestic currency and stock market operations have statistically insignificant effects on the interest rate differential.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/3.

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Length: 24
Date of creation: 01 Jan 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/3

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Keywords: Capital; Capital controls; Capital flows; foreign currency; foreign exchange; direct investment; portfolio investment; domestic borrowing; capital outflows; capital inflows; stock market; short-term capital; capital control; swap transactions; debt securities; capital account liberalization; capital movements; foreign direct investment; international capital; foreign portfolio investment; foreign capital; stock market transactions; domestic credit; stock exchange; industrial countries; foreign banks; hedging; equity investment; international trade; overseas investment; foreign investors; international investment; foreign capital inflows; return on foreign assets; floating exchange rate regime; financial futures; capital flow; sale of securities; listed securities; capital transactions; stockbrokers; debt service; capital investments; fdi; speculative capital; excess liquidity; foreign assets; debt service payments; foreign investment; foreign currencies; domestic bond market; government securities; speculative capital inflows; foreign liabilities; portfolio investments; liquid asset; capital account transactions;

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References

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  1. Natalia T. Tamirisa, 1998. "Exchange and Capital Controls As Barriers to Trade," IMF Working Papers, International Monetary Fund 98/81, International Monetary Fund.
  2. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp01-008, Harvard University, John F. Kennedy School of Government.
  3. Vittorio Grilli & Gian-Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Working Papers, International Monetary Fund 95/31, International Monetary Fund.
  4. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
  5. Reinhart, Carmen & Edison, Hali, 2001. "Stopping hot money," MPRA Paper 13862, University Library of Munich, Germany.
  6. Akira Ariyoshi & Andrei Kirilenko & Inci Ötker & Bernard Laurens & Jorge Iván Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls," IMF Occasional Papers 190, International Monetary Fund.
  7. Simon Johnson & Todd Mitton, 2001. "Cronyism and Capital Controls: Evidence from Malaysia," NBER Working Papers 8521, National Bureau of Economic Research, Inc.
  8. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports, Federal Reserve Bank of New York 11, Federal Reserve Bank of New York.
  9. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  10. Nicolas Magud & Carmen M. Reinhart, 2005. "Capital Controls: An Evaluation," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2005-19, University of Oregon Economics Department.
  11. Michael P. Dooley, 1995. "A Survey of Academic Literatureon Controls Over International Capital Transactions," IMF Working Papers, International Monetary Fund 95/127, International Monetary Fund.
  12. Eliane A. Cardoso & Ilan Goldfajn, 1997. "Capital Flows to Brazil-The Endogeneity of Capital Controls," IMF Working Papers, International Monetary Fund 97/115, International Monetary Fund.
  13. Michael Mussa & Giovanni Dell'Ariccia & Barry J. Eichengreen & Enrica Detragiache, 1998. "Capital Account Liberalization," IMF Occasional Papers 172, International Monetary Fund.
  14. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
  15. Fernandez-Arias, Eduardo & Montiel, Peter J., 1995. "The surge in capital inflows to developing countries : prospects and policy response," Policy Research Working Paper Series 1473, The World Bank.
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Citations

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Cited by:
  1. repec:ebl:ecbull:v:5:y:2007:i:6:p:1-14 is not listed on IDEAS
  2. Nicolas E. Magud & Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality - A Portfolio Balance Approach," NBER Working Papers 16805, National Bureau of Economic Research, Inc.
  3. Soo Khoon Goh, 2005. "New empirical evidence on the effects of capital controls on composition of capital flows in Malaysia," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(13), pages 1491-1503.
  4. Nicolas Magud & Carmen M. Reinhart, 2006. "Capital Controls: An Evaluation," NBER Working Papers 11973, National Bureau of Economic Research, Inc.
  5. Brana, Sophie & Lahet, Delphine, 2009. "Capital requirement and financial crisis: The case of Japan and the 1997 Asian crisis," Japan and the World Economy, Elsevier, Elsevier, vol. 21(1), pages 97-104, January.

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