Do capital controls boost EME´s resilience to financial crises?

Roman Goossens, Rogério Mori and Vladimir Teles ()

No 370, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: Capital controls are again in vogue as a number of emerging markets have reintroduced these measures in recent years in response to a 'flood' of international capital. Policymakers use these tools to buttress their economies against the 'sudden stop' risk that accompanies international capital flows. Using a panel VAR model, we show that capital controls appear to make emerging market economies (EMEs) more resistant to financial crises by showing that lower post-crisis output loss is correlated with stronger capital controls. However, EMEs that employ capital controls seem to be more crisis-prone. Thus, policymakers should carefully evaluate whether the benefits of capital controls outweigh their costs.

Date: 2014-10-23
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:370

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