Are capital controls in the foreign exchange market effective?

Stefan Straetmans, Roald Versteeg and Christian Wolff

Journal of International Money and Finance, 2013, vol. 35, issue C, 36-53

Abstract: One of the reasons for governments to employ capital controls is to obtain some degree of monetary independence. In this paper we test whether capital controls can reduce the link between exchange rates fluctuations and cross border interest differentials. Recent capital control proxies are used in order to determine the date of capital account liberalization for a panel of Western European and emerging countries. Results show that capital controls have a very limited effect on observed deviations from interest parities, even when accounting for the political risk associated with capital controls.

Keywords: Capital controls; Exchange rates; Interest differentials; Forward premia; Monetary freedom; Political risk (search for similar items in EconPapers)
JEL-codes: E42 F21 F31 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Are Capital Controls in the Foreign Exchange Market Effective? (2008)
Working Paper: Are Capital Controls in the Foreign Exchange Market Effective? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:35:y:2013:i:c:p:36-53

DOI: 10.1016/j.jimonfin.2013.01.005

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