TY  - JOUR
AU  - Edwards,Sebastian
AU  - Rigobon,Roberto
TI  - Capital Controls, Exchange Rate Volatility and External Vulnerability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11434
PY  - 2005
Y2  - June 2005
UR  - http://www.nber.org/papers/w11434
L1  - http://www.nber.org/papers/w11434.pdf
N1  - Author contact info:
Sebastian Edwards
UCLA Anderson Graduate School of Business
110 Westwood Plaza, Suite C508
Box 951481
Los Angeles, CA 90095-1481
Tel: 310/206-6797
Fax: 310/206-5825
E-Mail: sebastian.edwards@anderson.ucla.edu

Roberto Rigobon
MIT Sloan School of Management
100 Main Street, E62-516
Cambridge, MA 02142
Tel: 617/258-8374
Fax: 617/258-6855
E-Mail: rigobon@mit.edu
AB  - We use high frequency data and a new econometric methodology to evaluate the effectiveness of controls on capital inflows. We focus on Chile's experience during the 1990s and investigate whether controls on capital inflows reduced Chile's vulnerability to external shocks. We recognize that changes in the controls will affect the way in which different macro variables relate to each other. We take this problem seriously, and we develop a methodology to deal explicitly with it. The main findings may be summarized as follows: (a) A tightening of capital controls on inflows depreciates the exchange rate. (b) We find that the "vulnerability" of the nominal exchange rate to external factors decreases with a tightening of the capital controls. And (c), we find that a tightening of capital controls increases the unconditional volatility of the exchange rate, but makes this volatility less sensitive to external shocks.
ER  -