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Capital controls as shock absorbers

Nadav Ben Zeev ()

Journal of International Economics, 2017, vol. 109, issue C, 43-67

Abstract: The recent global financial crisis has resuscitated the debate on the relevance of capital controls as effective policy instruments. This paper contributes to this debate by studying the shock-absorbing capacity of capital controls. Using a recently developed capital control dataset for a panel of 33 emerging market economies, I show that output in economies with stricter capital inflow controls responds significantly less to global credit supply shocks, whereas capital outflow controls have no significant shock-absorbing capacity. Leverage is significantly lower in economies enacting stricter capital inflow controls, suggesting that financial frictions play a role in driving the shock-absorbing capacity of inflow controls.

Keywords: Capital controls; Credit supply shocks; Emerging market economies (search for similar items in EconPapers)
JEL-codes: F38 F41 F44 (search for similar items in EconPapers)
Date: 2017
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