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Controls on capital inflows: do they work?

  • De Gregorio, Jose
  • Edwards, Sebastian
  • Valdes, Rodrigo O.

This paper analyzes the effectiveness of capital controls, in particular the Chilean experience with the use of the unremunerated reserve requirement. We examine the effects on interest rates, real exchange rate, and the volume and composition of capital inflows. The effects are elusive and it is difficult to pin down long-run effects. Although after the unremunerated reserve requirement was introduced there was an increase in the interest rate differential, the econometric evidence does not show it has a significant long-run effect on interest rate differentials. There are also no effects on the real exchange rate. However, the more persistent and significant effect is on the composition of capital inflows, tilting composition toward longer maturity.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 63 (2000)
Issue (Month): 1 (October)
Pages: 59-83

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Handle: RePEc:eee:deveco:v:63:y:2000:i:1:p:59-83
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Leonardo Bartolini & Allan Drazen, 1996. "When Liberal Policies Reflect External Shocks, What Do We Learn?," NBER Working Papers 5727, National Bureau of Economic Research, Inc.
  2. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
  3. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," World Bank Economic Review, World Bank Group, vol. 11(3), pages 451-70, September.
  4. Cordella, Tito, 1998. "Can Short-Term Capital Controls Promote Capital Inflows," CEPR Discussion Papers 2011, C.E.P.R. Discussion Papers.
  5. Kevin Cowan & Jose De Gregorio, 1996. "Exchange rate policies and capital account management: Chile in the 1990s," Proceedings, Federal Reserve Bank of San Francisco, pages 465-488.
  6. Bernard Laurens & Jaime Cardoso, 1998. "Managing Capital Flows; Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
  7. Herrera, L.O. & Valdes, R., 1999. "The Effect of Capital Controls on Interest Rate Differentials," Papers 50, Cambridge - Risk, Information & Quantity Signals.
  8. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  9. Sebastian Edwards, 1998. "Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences," NBER Working Papers 6800, National Bureau of Economic Research, Inc.
  10. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  11. Francisco A. Gallego & Leonardo Hernandez & Klaus Schmidt-Hebbel, 2000. "Capital Controls in Chile: Effective? Efficient?," Econometric Society World Congress 2000 Contributed Papers 0330, Econometric Society.
  12. 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.
  13. Marcelo Soto & Salvador Valdés, 1996. "¿Es el Control Selectivo de Capitales Efectivo en Chile? Su Efecto sobre el Tipo de Cambio Real," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 77-108.
  14. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
  15. Salvador Valdés-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer, vol. 25(2), pages 133-164, January.
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