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The effectiveness of capital controls

Valerio Nispi Landi () and Alessandro Schiavone ()

No 1200, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The goal of this work is a systematic analysis of the effectiveness of capital controls in reducing the volume of capital flows and the probability of extreme events (surges and flights), strengthening financial stability and affecting the exchange rate. We find that controls significantly reduce capital flows, even though the effectiveness varies across economies and types of investment. Moreover capital controls tend to reduce the probability of extreme episodes. With regard to financial stability objectives, controls on banking inflows reduce domestic credit growth, but this effect is mainly driven by advanced economies. Controls on capital inflows reduce the share of domestic loans denominated in foreign currency. Finally, our estimates suggest that capital controls on inflows tend to be associated with an undervalued exchange rate only in emerging market economies.

Keywords: international capital flows; capital controls; prudential tools (search for similar items in EconPapers)
JEL-codes: F21 F32 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2018-11
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1200_18

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