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Impacts of restrictions on capital flows: an ARDL and local projections approaches

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  • Chokri Zehri

Abstract

The literature on impacts of restrictions on capital flows (ROCF) has many serious issues that make it difficult, if not impossible, to compare across theoretical and empirical studies. The paper revisits our earlier study 'Capital controls impacts: the challenge of policy coordination' by using a sample of 32 emerging economies (EEs) for the period 2000 to 2018. Two new approaches are followed, the autoregressive distributed lag (ARDL), and the local projections regression with impulse response functions. The study identifies the periods of ROCF and investigates whether ROCF affect domestic interest rate, exchange rate, and foreign exchange reserves. The results show that tightened ROCF allow to higher domestic interest rate, a more flexible exchange rate policy, and favour the hold of foreign exchange reserves. The study highlights some adverse effects of ROCF, particularly, the negative spillovers to neighbouring countries.

Suggested Citation

  • Chokri Zehri, 2022. "Impacts of restrictions on capital flows: an ARDL and local projections approaches," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 15(2/3/4), pages 303-316.
    • Handle: RePEc:ids:ijepee:v:15:y:2022:i:2/3/4:p:303-316
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