Capital Controls and 21st Century Financial Crises: Evidence from Colombia and Thailand
In the run up to the financial crisis of 2007-2009 many developing nations fell victim to massive inflows of capital, capital that their financial systems found difficult to absorb.� One of a number of policy options to respond to such inflows is unremunerated reserve requirements (URR).� Two countries, Colombia and Thailand, deployed URR in the second half of the decade.� This paper analyses the extent to which those URRs were successful in reducing the overall level and composition of capital inflows, reducing exchange rate appreciation and volatility, stemming asset bubbles, and granting more independence for monetary policy.� We find that URRs were modestly successful in Colombia and Thailand, though Thailand was less of a success than Colombia.� In Colombia the controls were able to reduce the overall volume of inflows and stem asset bubbles.� In Thailand, the URR did reduce the overall volume of flows, and the announcement of the URR caused a sharp drop in asset prices.� However, in both cases the controls were linked to exchange rate volatility and in Thailand asset prices recovered their upward trend the day after the announcement.� The results in this paper demonstrate that on the there is still a role for capital controls in the 21st century, but such controls should be more sophisticated than in years past.�
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (413) 545-6355
Fax: (413) 545-2921
Web page: http://www.peri.umass.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eliane A. Cardoso & Ilan Goldfajn, 1997.
"Capital Flows to Brazil-The Endogeneity of Capital Controls,"
IMF Working Papers
97/115, International Monetary Fund.
- Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
- Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000.
"Controls on Capital Inflows: Do they Work?,"
NBER Working Papers
7645, National Bureau of Economic Research, Inc.
- Francisco A. Gallego & Leonardo Hernandez & Klaus Schmidt-Hebbel, 2000.
"Capital Controls in Chile: Effective? Efficient?,"
Econometric Society World Congress 2000 Contributed Papers
0330, Econometric Society.
- 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.
- Reinhart, Carmen & Magud, Nicolas, 2007.
"Capital controls: An evaluation,"
14097, University Library of Munich, Germany.
- Nicolas Magud & Carmen M. Reinhart, 2005. "Capital Controls: An Evaluation," University of Oregon Economics Department Working Papers 2005-19, University of Oregon Economics Department.
- Nicolas Magud & Carmen M. Reinhart, 2006. "Capital Controls: An Evaluation," NBER Working Papers 11973, National Bureau of Economic Research, Inc.
- Edwards, Sebastian & Rigobon, Roberto, 2009. "Capital controls on inflows, exchange rate volatility and external vulnerability," Journal of International Economics, Elsevier, vol. 78(2), pages 256-267, July.
- Ayhan Kose, M. & Prasad, Eswar S. & Taylor, Ashley D., 2011.
"Thresholds in the process of international financial integration,"
Journal of International Money and Finance,
Elsevier, vol. 30(1), pages 147-179, February.
- Kose, M. Ayhan & Prasad, Eswar & Taylor, Ashley D., 2009. "Thresholds in the Process of International Financial Integration," IZA Discussion Papers 4133, Institute for the Study of Labor (IZA).
- M. Ayhan Kose & Eswar S. Prasad & Ashley D. Taylor, 2009. "Thresholds in the Process of International Financial Integration," NBER Working Papers 14916, National Bureau of Economic Research, Inc.
- Kose, M. Ayhan & Prasad, Eswar S. & Taylor, Ashley D., 2009. "Thresholds in the process of international financial integration," Policy Research Working Paper Series 5149, The World Bank.
- Ilene Grabel, 2003. "Averting crisis? Assessing measures to manage financial integration in emerging economies," Cambridge Journal of Economics, Oxford University Press, vol. 27(3), pages 317-336, May.
- Villar Leonardo, 2010. "Latin America: Comments on Financial Regulation and International Capital Flows in Latin America," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-12, January.
- Binici, Mahir & Hutchison, Michael & Schindler, Martin, 2010.
"Controlling capital? Legal restrictions and the asset composition of international financial flows,"
Journal of International Money and Finance,
Elsevier, vol. 29(4), pages 666-684, June.
- Mahir Binici & Michael M. Hutchison & Martin Schindler, 2009. "Controlling Capital? Legal Restrictions and the Asset Composition of International Financial Flows," IMF Working Papers 09/208, International Monetary Fund.
- 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.
- Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
- Edison, Hali & Reinhart, Carmen M., 2001.
"Stopping hot money,"
Journal of Development Economics,
Elsevier, vol. 66(2), pages 533-553, December.
- Benedict J. Clements & Herman Kamil, 2009. "Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia," IMF Working Papers 09/30, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:uma:periwp:wp213. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Judy Fogg)
If references are entirely missing, you can add them using this form.