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The interaction between capital controls and exchange rate regimes: evidence from developing countries

  • Jurgen Von Hagen
  • Jizhong Zhou

This paper provides an empirical analysis of the interaction between capital controls and exchange rate policies in developing countries in the 1980s and 1990s. We estimate a simultaneous-equations panel mixed logit model for the joint determination of two decisions. We find strong influences from de jure exchange rate regimes on capital account policies but somewhat weaker feedback impacts. With de facto exchange rate regimes the influences in both directions are similar to each other.

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Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 22 (2008)
Issue (Month): 2 ()
Pages: 163-185

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Handle: RePEc:taf:intecj:v:22:y:2008:i:2:p:163-185
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  1. Zhou, Jizhong & von Hagen, Jürgen, 2004. "Fear of floating and fear of pegging: An empirical anaysis of de facto exchange rate regimes in developing countries," ZEI Working Papers B 31-2004, ZEI - Center for European Integration Studies, University of Bonn.
  2. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
  3. Bai, Chong-en & Wei, Shang-Jin, 2001. "The quality of bureaucracy and capital account policies," Policy Research Working Paper Series 2575, The World Bank.
  4. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  5. Alesina, Alberto F & Grilli, Vittorio & Milesi-Ferretti, Gian Maria, 1993. "The Political Economy of Capital Controls," CEPR Discussion Papers 793, C.E.P.R. Discussion Papers.
  6. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
  7. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc.
  8. 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.
  9. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, June.
  10. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
  11. Natalia T. Tamirisa & R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 98/181, International Monetary Fund.
  12. Jacques Miniane, 2004. "A New Set of Measures on Capital Account Restrictions," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 4.
  13. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  14. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August.
  15. repec:rus:hseeco:181565 is not listed on IDEAS
  16. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  17. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  18. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
  19. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa60.
  20. Paolo Mauro & Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes; A Simple Sensitivity Analysis," IMF Working Papers 02/104, International Monetary Fund.
  21. von Hagen, Jurgen & Zhou, Jizhong, 2005. "The determination of capital controls: Which role do exchange rate regimes play?," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 227-248, January.
  22. von Hagen, Jürgen & Zhou, Jizhong, 2004. "The Choice of Exchange Rate Regime in Developing Countries: A Multinational Panel Analysis," CEPR Discussion Papers 4227, C.E.P.R. Discussion Papers.
  23. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-rate Commitments," International Organization, Cambridge University Press, vol. 53(01), pages 71-97, December.
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