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Are capital controls countercyclical?

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  • Fernández, Andrés
  • Rebucci, Alessandro
  • Uribe, Martín

Abstract

A growing theoretical literature advocates the use of countercyclical capital control policy, that is, the tightening of restrictions on net capital inflows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in 78 countries over the period 1995–2011. We find that capital controls are remarkably acyclical. Booms and busts in aggregate activity are associated with virtually no movements in capital controls. These results are robust to controlling for the level of development, external indebtedness, and the exchange-rate regime. They also obtain around the great contraction of 2007.

Suggested Citation

  • Fernández, Andrés & Rebucci, Alessandro & Uribe, Martín, 2015. "Are capital controls countercyclical?," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 1-14.
  • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:1-14
    DOI: 10.1016/j.jmoneco.2015.07.001
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    Cited by:

    1. Gina Christelle Pieters, 2017. "Bitcoin Reveals Exchange Rate Manipulation and Detects Capital Controls," 2017 Papers ppi307, Job Market Papers.
    2. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.
    3. Benigno, Gianluca & Chen, Huigang & Otrok, Christopher & Rebucci, Alessandro & Young, Eric R., 2016. "Optimal capital controls and real exchange rate policies: A pecuniary externality perspective," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 147-165.
    4. Nicolas Gavoille & Katharina Hofer, 2018. "Capital Controls and Electoral Cycles," SSE Riga/BICEPS Research Papers 5, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    5. Kitano, Shigeto & Takaku, Kenya, 2020. "Capital controls, macroprudential regulation, and the bank balance sheet channel," Journal of Macroeconomics, Elsevier, vol. 63(C).
    6. Kathryn M. E. Dominguez, 2020. "Revisiting Exchange Rate Rules," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 693-719, September.
    7. Hao Jin & Chen Xiong, 2018. "Financial Openness, Bank Capital Flows, and the Effectiveness of Macroprudential Policies," CAEPR Working Papers 2018-007, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    8. Ma, Chang, 2020. "Financial stability, growth and macroprudential policy," Journal of International Economics, Elsevier, vol. 122(C).
    9. Bilge Erten & Anton Korinek & José Antonio Ocampo, 2019. "Capital Controls: Theory and Evidence," NBER Working Papers 26447, National Bureau of Economic Research, Inc.
    10. Kathryn M. E. Dominguez, 0. "Revisiting Exchange Rate Rules," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-27.
    11. Chang Ma & John H. Rogers & Sili Zhou, 2019. "The Effect of the China Connect," Finance and Economics Discussion Series 2019-087, Board of Governors of the Federal Reserve System (U.S.).
    12. Kuersteiner, Guido M. & Phillips, David C. & Villamizar-Villegas, Mauricio, 2018. "Effective sterilized foreign exchange intervention? Evidence from a rule-based policy," Journal of International Economics, Elsevier, vol. 113(C), pages 118-138.
    13. Cantú, Carlos, 2019. "Effects of capital controls on foreign exchange liquidity," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 201-222.
    14. Radhika Pandey & Gurnain Pasricha & Ila Patnaik & Ajay Shah, 2015. "Motivations for Capital Controls and Their Effectiveness," Staff Working Papers 15-5, Bank of Canada.
    15. Andrés Fernández & Alessandro Rebucci & Martín Uribe, 2013. "Are Capital Controls Prudential? An Empirical Investigation," NBER Working Papers 19671, National Bureau of Economic Research, Inc.
    16. Ben Zeev, Nadav, 2017. "Capital controls as shock absorbers," Journal of International Economics, Elsevier, vol. 109(C), pages 43-67.
    17. Nadav Ben Zeev, 2017. "Exchange Rate Regimes And Sudden Stops," Working Papers 1712, Ben-Gurion University of the Negev, Department of Economics.
    18. Luís A.V. Catão & Daniel Marcel te Kaat, 2018. "Capital Account Liberalization and the Composition of Bank Liabilities," Working Papers REM 2018/53, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    19. Ben Zeev, Nadav, 2019. "Global credit supply shocks and exchange rate regimes," Journal of International Economics, Elsevier, vol. 116(C), pages 1-32.
    20. Seoane, Hernán D. & Yurdagul, Emircan, 2019. "Trend shocks and sudden stops," Journal of International Economics, Elsevier, vol. 121(C).
    21. Miguel Acosta-Henao & Laura Alfaro & Andrés Fernández, 2020. "Sticky Capital Controls," Working Papers Central Bank of Chile 877, Central Bank of Chile.
    22. Di Casola, Paola & Sichlimiris, Spyridon, 2017. "Domestic and External Sovereign Debt," Working Paper Series 345, Sveriges Riksbank (Central Bank of Sweden).
    23. Lorenzo Menna & Martin Tobal, 2018. "Financial and price stability in emerging markets: the role of the interest rate," BIS Working Papers 717, Bank for International Settlements.
    24. Tobal Martín, 2017. "Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean," Working Papers 2017-21, Banco de México.

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