Capital controls to manage foreign exchange reserves and foreign debts

Chokri Zehri ()
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Chokri Zehri: Prince Sattam Bin Abdulaziz University, College of Sciences and Humanities in Al-Sulail, Saudi Arabia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2020, vol. 38, issue 1, 271-294

Abstract: The study explores the relationship between foreign exchange reserves (FER) and foreign borrowing (FB) within the framework of the management of capital flows. To investigate this relationship and examine the effect of capital control on foreign exchange reserves and external debt of two approaches are applied, the panel vector autoregression model (PVAR) and a traditional model of the reserve demand for 25 emerging countries over the period 1985-2019. The results show a negative association between FER and FB; the direction of the causality was from debts to reserves. Capital controls, as an instrument to reduce the short-term inflows, fail to restrict the accumulation of exchange reserves and conversely, succeed in limiting the recourse to foreign borrowing. Net foreign assets replacing foreign exchange reserves highlights different impacts of capital controls and raise the issue on a correct evaluation of foreign exchange reserves.

Keywords: capital controls; debts; reserves; foreign assets (search for similar items in EconPapers)
JEL-codes: F32 F36 F37 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:38:y:2020:i:1:p:271-294

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