Are capital controls in the foreign exchange market effective?

One of the reasons for governments to employ capital controls is to obtain some degree of monetary independence. In this paper we test whether capital controls can reduce the link between exchange rates fluctuations and cross border interest differentials. Recent capital control proxies are used in...

Full description

Saved in:
Bibliographic Details
Published in:Journal of international money and finance 2013-06, Vol.35, p.36-53
Main Authors: Straetmans, Stefan T.M., Versteeg, Roald J., Wolff, Christian C.P.
Format: Article
Language:English
Subjects:
Capital controls
Economic fluctuations
Economic theory
Exchange market
Exchange rates
Foreign exchange markets
Foreign exchange rates
Forward premia
Interest differentials
Manycountries
Monetary economics
Monetary freedom
Monetary policy
Political behaviour
Political economy
Political risk
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:One of the reasons for governments to employ capital controls is to obtain some degree of monetary independence. In this paper we test whether capital controls can reduce the link between exchange rates fluctuations and cross border interest differentials. Recent capital control proxies are used in order to determine the date of capital account liberalization for a panel of Western European and emerging countries. Results show that capital controls have a very limited effect on observed deviations from interest parities, even when accounting for the political risk associated with capital controls.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2013.01.005