Interest Rates, Contagion and Capital Controls

Sebastian Edwards

No 7801, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper I analyze several issues related to contagion,' including its definition, recent experiences, alternative channels at work, and possible prevention mechanisms. The discussion deals with the macroeconomics implications of contagion, and concentrates on the relationship between the degree of openness of the capital account and the transmission of foreign shocks. More specifically, I ask whether restrictions to capital mobility and, in particular, controls on capital inflows of the type Chile implemented throughout most of the 1990s reduce a country's vulnerability to contagion. I also deal, albeit briefly, with the connection between the exchange rate regime and the propagation of international shocks. The evidence presented in this paper shows that the effectiveness of Chile's controls on inflows has often been overstated. Indeed, Chile was severely affected by the East Asian, Russian and Brazilian crises.

JEL-codes: F0 F3 (search for similar items in EconPapers)
Date: 2000-07
New Economics Papers: this item is included in nep-mon
Note: IFM
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Citations: View citations in EconPapers (37)

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