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The effectiveness of macroprudential policies and capital controls against volatile capital inflows

Jon Frost (), Hiro Ito () and René van Stralen

No 867, BIS Working Papers from Bank for International Settlements

Abstract: This paper compares the effectiveness of macroprudential policies (MaPs) and capital controls (CCs) in influencing the volume and composition of capital inflows, and the probability of banking and currency crises. We distinguish between foreign exchange (FX)-based MaPs, which may be similar to some types of CCs, and non-FX-based MaPs. Using a panel of 83 countries over the period 2000-17, and a propensity score matching model to control for selection bias, we find that capital inflow volumes are lower where FX-based MaPs have been activated. The imposition of CCs does not have a significant effect on the volume or composition of capital inflows. Further, we find that the activation of MaPs is associated with a lower probability of banking crises and surges in capital inflows in the following three years.

Keywords: capital account openness; capital flows; capital controls; macroprudential policy; banking crises; currency crises (search for similar items in EconPapers)
JEL-codes: F38 G01 G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-05
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