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The determination of capital controls: Which role do exchange rate regimes play?

  • von Hagen, Jurgen
  • Zhou, Jizhong

This paper investigates the role of exchange rate regime choices in the determination of capital controls in transition economies. We first use a simultaneous equations model to allow direct interactions between decisions on capital controls and on exchange rate regimes. We find that exchange rate regime choices strongly influence the imposition or removal of capital controls, but the feed-back effect is weak. We further estimate a single equation model for capital controls with exchange rate regime choices as independent variables, and we find that there is a hump-shaped relationship between exchange rate regime flexibility and capital control intensity.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 29 (2005)
Issue (Month): 1 (January)
Pages: 227-248

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Handle: RePEc:eee:jbfina:v:29:y:2005:i:1:p:227-248
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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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  17. Helge Berger & Jan-Egbert Sturm & Jakob de Haan, 2001. "Capital Controls and Exchange Rate Regimes: An Empirical Investigation," CESifo Working Paper Series 433, CESifo Group Munich.
  18. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa60, February.
  19. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
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