NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Domestic and Multilateral Effects of Capital Controls in Emerging Markets

Gurnain Pasricha, Matteo Falagiarda, Martin Bijsterbosch, Joshua Aizenman

NBER Working Paper No. 20822
Issued in January 2015, Revised in July 2017
NBER Program(s):   IFM

Using a novel, high frequency dataset on capital control actions in 16 emerging market economies (EMEs) from 2001 to 2012, we provide new insights into the domestic and multilateral effects of capital controls. Increases in capital account openness reduce monetary policy autonomy and increase exchange rate stability, confirming the constraints of the monetary policy trilemma. Both gross in- and outflows rise, while the effect on net capital flows is ambiguous. Tighter capital inflow restrictions generated significant spillovers, especially in the post-2008 environment of abundant global liquidity. We also find evidence of a domestic policy response to foreign capital control changes in countries that are affected by these spillovers.

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Document Object Identifier (DOI): 10.3386/w20822

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