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Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia

  • Benedict J. Clements
  • Herman Kamil
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    This paper assesses the effects of capital controls imposed in Colombia in 2007 on capital flows and exchange rate dynamics. The results suggest that the controls were successful in reducing external borrowing, but had no statistically significant impact on the volume of non- FDI flows as a whole. We find no evidence that restrictions to capital mobility moderated the appreciation of Colombia''s currency, or increased the degree of independence of monetary policy. We also find that controls have significantly increased the volatility of the exchange rate. Additional research is needed to assess the effects of capital controls on financial stability.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/30.

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    Length: 27
    Date of creation: 01 Feb 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/30
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    1. Sebastian Edwards & Roberto Rigobon, 2005. "Capital Controls, Exchange Rate Volatility and External Vulnerability," NBER Working Papers 11434, National Bureau of Economic Research, Inc.
    2. Kristin J. Forbes, 2005. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Working Papers 11372, National Bureau of Economic Research, Inc.
    3. Herman Kamil, 2008. "Is Central Bank Intervention Effective Under Inflation Targeting Regimes? the Case of Colombia," IMF Working Papers 08/88, International Monetary Fund.
    4. Cardenas, Mauricio & Barrera, Felipe, 1997. "On the effectiveness of capital controls: The experience of Colombia during the 1990s," Journal of Development Economics, Elsevier, vol. 54(1), pages 27-57, October.
    5. Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
    6. Braumoeller, Bear F., 2004. "Hypothesis Testing and Multiplicative Interaction Terms," International Organization, Cambridge University Press, vol. 58(04), pages 807-820, October.
    7. Reinhart, Carmen & Montiel, Peter, 1999. "Do capital controls influence the volume and composition of capital flows? Evidence from the 1990s," MPRA Paper 13710, University Library of Munich, Germany.
    8. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    9. Carolina Gómez Restrepo & Diego Jara Pinzón & Andrés Murcia Pabón, . "Impacto De Las Operaciones De Los Fondos De Pensiones Obligatorias En Los Mercados Financieros Colombianos," Borradores de Economia 406, Banco de la Republica de Colombia.
    10. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    11. Antonio David, 2009. "Are price-based capital account regulations effective in developing countries?," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3375-3388.
    12. 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.
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