Are price-based capital account regulations effective in developing countries?

Antonio David

Applied Economics, 2009, vol. 41, issue 26, 3375-3388

Abstract: In this article, we evaluate the effectiveness of policy measures adopted by Chile and Colombia aiming to mitigate the deleterious effects of pro-cyclical capital flows. In the case of Chile, according to our GMM analysis, capital controls succeeded in reducing net short-term capital flows, but did not affect long-term flows. As far as Colombia is concerned, the regulations were capable of affecting total flows and also long-term ones. In addition, our cointegration models indicate that the regulations did not have a direct effect on the real exchange rate in the Chilean case. Nonetheless, the model used for Colombia did detect a direct impact of the capital controls on the real exchange rate. Therefore, our results do not seem to support the idea that those regulations were easily evaded.

Date: 2009
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Working Paper: Are price-based capital account regulations effective in developing countries ? (2007)
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DOI: 10.1080/00036840701367689

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