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Capital controls as shock absorbers

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  • Ben Zeev, Nadav

Abstract

The recent global financial crisis has resuscitated the debate on the relevance of capital controls as effective policy instruments. This paper contributes to this debate by studying the shock-absorbing capacity of capital controls. Using a recently developed capital control dataset for a panel of 33 emerging market economies, I show that output in economies with stricter capital inflow controls responds significantly less to global credit supply shocks, whereas capital outflow controls have no significant shock-absorbing capacity. Leverage is significantly lower in economies enacting stricter capital inflow controls, suggesting that financial frictions play a role in driving the shock-absorbing capacity of inflow controls.

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  • Ben Zeev, Nadav, 2017. "Capital controls as shock absorbers," Journal of International Economics, Elsevier, vol. 109(C), pages 43-67.
  • Handle: RePEc:eee:inecon:v:109:y:2017:i:c:p:43-67
    DOI: 10.1016/j.jinteco.2017.08.004
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    Cited by:

    1. Scheubel, Beatrice & Stracca, Livio & Tille, Cédric, 2019. "The global financial cycle and capital flow episodes: a wobbly link?," Working Paper Series 2337, European Central Bank.
    2. Nadav Ben Zeev, 2017. "Exchange Rate Regimes And Sudden Stops," Working Papers 1712, Ben-Gurion University of the Negev, Department of Economics.
    3. Bergant, Katharina & Grigoli, Francesco & Hansen, Niels-Jakob & Sandri, Damiano, 2020. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," CEPR Discussion Papers 14948, C.E.P.R. Discussion Papers.
    4. Seung-Gwan Baek & Chi-Young Song, 2019. "What Drives Stops in Cross-Border Bond Flows?," Sustainability, MDPI, Open Access Journal, vol. 11(14), pages 1-21, July.

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    More about this item

    Keywords

    Capital controls; Credit supply shocks; Emerging market economies;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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