Stopping hot money
AbstractWhile high interest rates and foreign exchange sales are the most common way of dealing with a speculative attack in the foreign exchange market, several countries resorted to capital controls during recent periods of currency market turbulence. The purpose of this study is to use daily financial data to examine four of these capital controls episodes--Brazil, 1999, Malaysia 1998, Spain 1992, and Thailand 1997. We aim to assess the extent to which the capital controls were effective in delivering the outcomes that motivated their inception in the first place. We conclude that in two of the three cases (Brazil and Thailand), the controls did not deliver much of what was intended--although, one does not observe the counterfactual. By contrast, in the case of Malaysia the controls did align closely with the priors of what controls are intended to achieve: greater interest rate and exchange rate stability and more policy autonomy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13862.
Date of creation: Dec 2001
Date of revision:
Publication status: Published in Journal of Development Econommics 2.22(2001): pp. 533-553
capital controls financial crises contagion Asia;
Other versions of this item:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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- Reinhart, Carmen & Leiderman, Leonardo, 1994. "Capital inflows to Latin America," MPRA Paper 13406, University Library of Munich, Germany.
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"Financial crises in Asia and Latin America: Then and now,"
13877, University Library of Munich, Germany.
- Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-48, May.
- Reinhart, Vincent R, 2000. "How the Machinery of International Finance Runs with Sand in Its Wheels," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 74-85, February.
- 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.
- Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June.
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