Capital Controls and 21st Century Financial Crises: Evidence from Colombia and Thailand

Bruno Coelho and Kevin Gallagher

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: In the run up to the financial crisis of 2007-2009 many developing nations fell victim to massive inflows of capital, capital that their financial systems found difficult to absorb. One of a number of policy options to respond to such inflows is unremunerated reserve requirements (URR). Two countries, Colombia and Thailand, deployed URR in the second half of the decade. This paper analyses the extent to which those URRs were successful in reducing the overall level and composition of capital inflows, reducing exchange rate appreciation and volatility, stemming asset bubbles, and granting more independence for monetary policy. We find that URRs were modestly successful in Colombia and Thailand, though Thailand was less of a success than Colombia. In Colombia the controls were able to reduce the overall volume of inflows and stem asset bubbles. In Thailand, the URR did reduce the overall volume of flows, and the announcement of the URR caused a sharp drop in asset prices. However, in both cases the controls were linked to exchange rate volatility and in Thailand asset prices recovered their upward trend the day after the announcement. The results in this paper demonstrate that on the there is still a role for capital controls in the 21st century, but such controls should be more sophisticated than in years past.

Date: 2010
New Economics Papers: this item is included in nep-dev and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://per.umass.edu/fileadmin/pdf/working_papers ... rs_201-250/WP213.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to per.umass.edu:443 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uma:periwp:wp213

Access Statistics for this paper

More papers in Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst Contact information at EDIRC.
Bibliographic data for series maintained by Judy Fogg ( this e-mail address is bad, please contact ).