An assessment of another decade of capital controls in Colombia: 1998–2008

Alvaro Concha, Arturo Galindo and Diego Vásquez ()

The Quarterly Review of Economics and Finance, 2011, vol. 51, issue 4, 319-338

Abstract: We explore the effectiveness of capital controls in Colombia. We analyze the impact of administrative restrictions to capital flows on aggregate capital flows, the composition of capital flows, the real exchange rate, and economic activity using restricted versions of vector error correction models (VEC) that control for exogenous global financial conditions. The models are estimated using monthly data ranging from August of 1998 to May of 2008. In addition we estimate GARCH models to identify if capital controls have had relevant impacts on the volatility of the nominal exchange rate and of other relevant asset prices. These models are estimated using weekly data covering the same time period. Results suggest that the capital controls used since 1998 have been ineffective in reducing capital flows and the trend of the Colombian peso to appreciate. In addition there is no evidence suggesting a change in the composition of capital flows induced by capital controls. We find some evidence in favor of capital controls reducing nominal exchange rate volatility at high frequencies.

Keywords: Capital controls; Capital flows; Colombia; Reserve requirement; Exchange rates (search for similar items in EconPapers)
JEL-codes: F21 F30 F32 F41 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:51:y:2011:i:4:p:319-338

DOI: 10.1016/j.qref.2011.08.002

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