NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Capital Controls Prudential? An Empirical Investigation

Andrés Fernández, Alessandro Rebucci, Martín Uribe

NBER Working Paper No. 19671
Issued in November 2013
NBER Program(s):   EFG   IFM

A growing recent theoretical literature advocates the use of prudential capital control policy, that is, the tightening of restrictions on cross-border capital flows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no movements in capital controls. These results are robust to decomposing boom-bust episodes along a number of dimensions, including the level of development, the level of external indebtedness, or the exchange-rate regime. We also document a near complete acyclicality of capital controls during the Great Contraction of 2007-2009.

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Document Object Identifier (DOI): 10.3386/w19671

Published: Journal of Monetary Economics Volume 76, November 2015, Pages 1–14 Cover image Are capital controls countercyclical? Andrés Fernándeza, , Alessandro Rebuccib, , Martín Uribec, d, ,

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