THE ROLE OF CAPITAL CONTROLS IN MEDIATING GLOBAL SHOCKS

Kerli Lille

No 102, University of Tartu - Faculty of Economics and Business Administration Working Paper Series from Faculty of Economics and Business Administration, University of Tartu (Estonia)

Abstract: This paper studies the role of capital controls in the transmission of global commodity price shocks in explaining the variation of domestic business cycles in 89 countries for the period 1995–2013. The results suggest that countries that are relatively open or closed have lower variance in output, consumption and investments explained by global shocks than those countries that have partially liberalised capital markets. On the contrary, relatively closed and open economies have a much higher share of the trade balance to output ratio volatility explained than partially liberalised countries. This pattern is independent of the level of economic development or geographical region. The results show that a partial liberalisation of the capital account might make countries more vulnerable to world shocks, than opening and closing the capital account completely.

Keywords: World Shocks; Capital Controls; Capital Account Liberalisation (search for similar items in EconPapers)
JEL-codes: C51 F3 F38 F45 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017
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