Capital controls and foreign reserves against external shocks: Combined or alone?

Rafael Cezar and Eric Monnet

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: Long considered suboptimal, capital controls and FX interventions are now recognized as prudential measures. Yet, whether they are used in combination remains an open question. Thanks to a rich dataset from 1950, we investigate how the response of FX reserves to an exogenous US monetary shock depends on capital controls. The response is insignificant with a very close capital account. By contrast, for a significant number of countries, FX reserves and capital controls are combined to tame the effects of an international financial shock. Yet, as countries open up financially, FX reserves replace capital controls. There is no one-sizes-fits-all recipe.

Keywords: Capital controls; Foreign exchange interventions; Foreign exchange reserves; Global financial cycle (search for similar items in EconPapers)
Date: 2023-10
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Published in Journal of International Money and Finance, 2023, 137, ⟨10.1016/j.jimonfin.2023.102906⟩

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Related works:
Journal Article: Capital controls and foreign reserves against external shocks: Combined or alone? (2023)
Working Paper: Capital controls and foreign reserves against external shocks: Combined or alone? (2023)
Working Paper: Capital Controls and Foreign Reserves against External Shocks: Combined or Alone? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-04409575

DOI: 10.1016/j.jimonfin.2023.102906

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