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Price-based capital account regulations: the Colombian experience

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  • José Antonio Ocampo

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  • Camilo Ernesto Tovar

Abstract

The Chilean experience with price-based capital account regulations (i.e., deposits or reserve requirements on capital inflows) has been subject to extensive discussion in the recent literature. This paper presents evidence on the effectiveness of similar regulations in Colombia since September 1993, when traditional exchange controls were replaced by price-based regulations. It is important to emphasize that the Tobin tax equivalent of such regulations in Colombia has been quite high (13.6% and 6.4% tax for 12 and 36 months loans, respectively, in 1994-1998), and, as in Chile, it is certainly much higher than the rates suggested for an international Tobin tax. The econometric evidence presented indicates that these regulations have been effective in Colombia, both in terms of reducing the volume of flows and in improving the term structure of external borrowing. This indicates that price-based regulations give the authorities some room for maneuver to adopt restrictive monetary policies during international capital market booms. They have also been effective in improving the debt profile of the country, a crucial determinant of macroeconomic risks in the face of busts in the international capital market.

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  • José Antonio Ocampo & Camilo Ernesto Tovar, 1999. "Price-based capital account regulations: the Colombian experience," DOCUMENTOS DE INVESTIGACION 003372, CEPAL NACIONES UNIDAS.
  • Handle: RePEc:col:000140:003372
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    1. Salvador Valdés-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(2), pages 133-164, January.
    2. Reinhart, C.M. & Dunaway, S., 1996. "Dealing with Capital Inflows. Are There Any Lessons?," Research Paper 28, World Institute for Development Economics Research.
    3. Vargas, Juan Rafael, 1995. "Flujos financieros internacionales privados de capital a Costa Rica," Financiamiento para el Desarrollo 35, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Chisari, Omar & Ferro, Gustavo & González, Mariano & León, Sonia & Maquieryra, Javier & Mastronardi, Leonardo & Roitman, Mauricio & Romero, Carlos & Theller, Ricardo, 2010. "Modelo de Equilibrio General Computado para la Argentina 2006," UADE Textos de Discusión 63_2010, Instituto de Economía, Universidad Argentina de la Empresa.
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    Cited by:

    1. José Antonio Ocampo, 2000. "Recasting the International Financial Agenda," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2000-18, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    2. Gabriel Palma, 2000. "The Three Routes to Financial Crises: The Need for Capital Controls," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2000-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    3. -, 2002. "Growth with stability: financing for development in the new international context," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 67 edited by Eclac, May.
    4. Antonio David, 2009. "Are price-based capital account regulations effective in developing countries?," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3375-3388.
    5. Ocampo, José Antonio, 2003. "Capital-account and counter-cyclical prudential regulations in developing countries," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1796, September.
    6. Leonardo Villar & Hernán Rincón, 2000. "The Colombian Economy in the nineties: Capital Flows and Foreign Exchange Regimes," Borradores de Economia 149, Banco de la Republica de Colombia.
    7. Concha, Alvaro & Galindo, Arturo José & Vasquez, Diego, 2011. "An assessment of another decade of capital controls in Colombia: 1998–2008," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 319-338.
    8. José Darío Uribe, 2005. "Capital controls and foreign exchange market intervention in Colombia," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 128-40 Bank for International Settlements.
    9. Moguillansky, Graciela, 2002. "Investment and financial volatility in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.

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