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Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia

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  • Benedict J. Clements
  • Herman Kamil
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    Abstract

    This paper assesses the effects of capital controls imposed in Colombia in 2007 on capital flows and exchange rate dynamics. The results suggest that the controls were successful in reducing external borrowing, but had no statistically significant impact on the volume of non- FDI flows as a whole. We find no evidence that restrictions to capital mobility moderated the appreciation of Colombia''s currency, or increased the degree of independence of monetary policy. We also find that controls have significantly increased the volatility of the exchange rate. Additional research is needed to assess the effects of capital controls on financial stability.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/30.

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    Length: 27
    Date of creation: 01 Feb 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/30

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    Related research

    Keywords: Capital controls; Capital inflows; Capital flows; Exchange rate appreciation; Exchange rate developments; Emerging markets; Economic models; exchange rate; exchange rates; foreign exchange; private capital flows; private capital; exchange rate volatility; private capital inflows; real exchange rate; foreign exchange market; commodity prices; currency appreciation; nominal exchange rate; determinants of capital flows; capital markets; currency transactions; exchange rate data; capital account transactions; daily exchange rate; foreign exchange markets; capital account restrictions; composition of capital inflows; exchange markets; stock market; capital goods; capital flow; short-term capital inflows; capital control; capital movements; capital mobility; private inflows; exchange rate intervention; exchange rate pressures; exchange rate levels; exchange rate dynamics; competitive exchange rate; exchange rate determination; exchange transactions; exchange rate movements; forward exchange; forward exchange rates; exchange market intervention; dollar exchange rate; foreign exchange transactions; short-term capital; real exchange rates; real appreciation;

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    References

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    1. Cardenas, Mauricio & Barrera, Felipe, 1997. "On the effectiveness of capital controls: The experience of Colombia during the 1990s," Journal of Development Economics, Elsevier, vol. 54(1), pages 27-57, October.
    2. Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000. "Controls on Capital Inflows: Do they Work?," NBER Working Papers 7645, National Bureau of Economic Research, Inc.
    3. Nicolas Magud & Carmen M. Reinhart, 2006. "Capital Controls: An Evaluation," NBER Working Papers 11973, National Bureau of Economic Research, Inc.
      • Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
    4. Carolina Gómez Restrepo & Diego Jara Pinzón & Andrés Murcia Pabón, 2006. "Impacto De Las Operaciones De Los Fondos De Pensiones Obligatorias En Los Mercados Financieros Colombianos," BORRADORES DE ECONOMIA 002806, BANCO DE LA REPÚBLICA.
    5. Kristin J. Forbes, 2005. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Working Papers 11372, National Bureau of Economic Research, Inc.
    6. Braumoeller, Bear F., 2004. "Hypothesis Testing and Multiplicative Interaction Terms," International Organization, Cambridge University Press, vol. 58(04), pages 807-820, October.
    7. Sebastian Edwards & Roberto Rigobon, 2005. "Capital Controls, Exchange Rate Volatility and External Vulnerability," NBER Working Papers 11434, National Bureau of Economic Research, Inc.
    8. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers 220, International Monetary Fund.
    9. Herman Kamil, 2008. "Is Central Bank Intervention Effective Under Inflation Targeting Regimes? the Case of Colombia," IMF Working Papers 08/88, International Monetary Fund.
    10. David, Antonio C., 2007. "Are price-based capital account regulations effective in developing countries ?," Policy Research Working Paper Series 4175, The World Bank.
    11. José Darío Uribe, 2005. "Capital controls and foreign exchange market intervention in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 128-40 Bank for International Settlements.
    12. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
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    Citations

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    Cited by:
    1. Jean François Clevy Aguilar, 2011. "Operatoria de política monetaria y regulación macroprudencial," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 117-125, Julio-sep.
    2. Concha, Alvaro & Galindo, Arturo José & Vasquez, Diego, 2011. "An assessment of another decade of capital controls in Colombia: 1998–2008," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 319-338.
    3. Bruno Coelho & Kevin P. Gallagher, 2013. "The effectiveness of capital controls: evidence from Colombia and Thailand," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(3), pages 386-403, May.
    4. Jonathan D. Ostry & Atish R. Ghosh & Karl Habermeier & Luc Laeven & Marcos Chamon & Mahvash S. Qureshi & Annamaria Kokenyne, 2011. "Gestión de la entrada de capitales: ¿Qué herramientas usar?," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 138-174, Julio-sep.
    5. 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.
    6. Bruno Coelho & Kevin Gallagher, 2010. "Capital Controls and 21st Century Financial Crises: Evidence from Colombia and Thailand," Working Papers wp213, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Vanessa Da Costa Val Munhoz & Gilberto Libânio, 2011. "Revisitando Os Controles De Capitais:Notas Teóricas E Evidências Empíricas," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 202, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    8. Jean-Claude Trichet, 2011. "Cómo lograr el máximo crecimiento a largo plazo," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 126-137, Julio-sep.
    9. Matthew S. Yiu, 2011. "The Effect of Capital Flow Management Measures in Five Asian Economies on the Foreign Exchange Market," Working Papers 412011, Hong Kong Institute for Monetary Research.
    10. R. Kohli, . "India's Experience in Navigating the Trilemma: Do Capital Controls Help?," Indian Council for Research on International Economic Relations, New Delhi Working Papers 257, Indian Council for Research on International Economic Relations, New Delhi, India.
    11. Raúl Morales, 2011. "Situación actual de los sistemas de pago de bajo valor en América Latina y el Caribe," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 107-116, Julio-sep.
    12. International Monetary Fund, 2011. "Policy Instruments to Lean Against the Wind in Latin America," IMF Working Papers 11/159, International Monetary Fund.
    13. Abhakorn, Pongrapeeporn & Tantisantiwong, Nongnuch, 2012. "A reexamination of capital controls’ effectiveness: Recent experience of Thailand," Journal of Asian Economics, Elsevier, vol. 23(1), pages 26-38.
    14. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.

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