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Controls on capital inflows and external shocks

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  • David, Antonio C.

Abstract

The author attempts to analyze whether price-based controls on capital inflows are successful in insulating economies against external shocks. He presents results from vector auto regressive (VAR) models that indicate that Chile and Colombia, countries that adopted controls on capital inflows, seem to have been relatively well insulated against external disturbances. Subsequently, he uses the auto regressive distributed lag (ARDL) approach to co-integrationto isolate the effects of the capital controls on the pass-through of external disturbances to domestic interest rates in those economies. The author concludes that there is evidence that the capital controls allowed for greater policy autonomy.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4176.

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Date of creation: 01 Mar 2007
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Handle: RePEc:wbk:wbrwps:4176

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Keywords: Macroeconomic Management; Economic Theory&Research; Economic Stabilization; Capital Flows; Financial Economics;

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References

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  1. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  2. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
  3. Leonardo Villar & Hernán Rincón, . "The Colombian Economy in the nineties: Capital Flows and Foreign Exchange Regimes," Borradores de Economia 149, Banco de la Republica de Colombia.
  4. Edison, Hali & Reinhart, Carmen M., 2001. "Stopping hot money," Journal of Development Economics, Elsevier, vol. 66(2), pages 533-553, December.
  5. Mark Carlson & Leonardo Hernandez, 2002. "Determinants and repercussions of the composition of capital inflows," International Finance Discussion Papers 717, Board of Governors of the Federal Reserve System (U.S.).
  6. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  7. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  8. David, Antonio C., 2007. "Revisiting Price-based Controls on Capital Inflows in a "Sophisticated" Emerging Market," World Development, Elsevier, vol. 35(8), pages 1329-1340, August.
  9. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
  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. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  12. Mark S. Carlson & Leonardo Hernández, 2002. "Determinants and Repercussions of the Composition of Capital Inflows," IMF Working Papers 02/86, International Monetary Fund.
  13. Francisco Gallego & Leonardo Hernández & Klaus Schmidt-Hebbel, 2002. "Capital Controls in Chile: Were They Effective?," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 12, pages 361-412 Central Bank of Chile.
  14. Garry J. Schinasi & R. Todd Smith, 2000. "Portfolio Diversification, Leverage, and Financial Contagion," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1.
  15. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  16. Jeffrey Frankel & Sergio Schmukler, 1996. "Country fund discounts and the mexican crisis of December 1994: Did local residents turn pessimistic before international investors?," Open Economies Review, Springer, vol. 7(1), pages 511-534, March.
  17. Ashoka Mody & Mark P. Taylor, 2002. "International Capital Crunches," IMF Working Papers 02/43, International Monetary Fund.
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Cited by:
  1. Moritz Cruz & Bernard Walters, 2008. "Is the accumulation of international reserves good for development?," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 665-681, September.
  2. David, Antonio C., 2007. "Revisiting Price-based Controls on Capital Inflows in a "Sophisticated" Emerging Market," World Development, Elsevier, vol. 35(8), pages 1329-1340, August.

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