The Interaction Between Capital Controls and Exchange Rate Regimes: Evidence from Developing Countries

Juergen von Hagen () and Jizhong Zhou

No 5537, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The choice of the exchange rate regime and the capital account regime are among the core macro economic policy decisions for developing countries, with important repercussions for a country's macro economic stability, ability to attract foreign capital, and international trade. Existing literature has considered the determinants of these decisions, taking the capital account regime as given when considering the exchange rate regime and vice versa. This paper provides an empirical analysis of the interaction between the two regime choices treating both as simultaneously endogenous. Using a panel data set for developing countries in the 1980s and 1990s, we estimate a simultaneous-equations panel mixed logit model for the joint determination of both choices. We find strong influences from the official, de jure exchange rate regime on capital account policies, but only weak feedback effects. Using de-facto exchange rate regimes, the influences in both directions are similar to each other.

Keywords: capital controls; exchange rate regimes; panel mixed logit model; simultaneous equations model (search for similar items in EconPapers)
JEL-codes: C33 C35 F20 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dcm, nep-fmk and nep-ifn
Date: 2006-03
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP5537.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The interaction between capital controls and exchange rate regimes: evidence from developing countries (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:5537

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP5537.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().