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This paper presents a new data set of capital controls by inflows and outflows for 10 asset categories in 100 countries during 1995-2013. Building on the data in Schindler (2009) and other data sets based on the analysis of the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), this data set covers additional asset categories, more countries, and a longer time period. The paper discusses in detail the construction of the data and characterizes them with respect to the prevalence and correlation of controls across asset categories and between inflow and outflow controls, the aggregation of the separate categories into broader indicators, the experience of some particular countries, and the comparison of these data with others indices of capital controls.

This paper synthesizes recent advances in the theoretical and empirical literature on capital controls. We start by observing that international capital flows have both benefits and costs, but some of these are not internalized by individual actors and thus constitute externalities. The theoretical literature has identified pecuniary externalities and aggregate demand externalities that respectively contribute to financial instability and recessions. These externalities provide a natural rationale for countercyclical capital controls that lean against boom and bust cycles in international capital flows. The empirical literature has developed several measures of capital controls to capture different aspects of capital account openness. We evaluate the strengths and weaknesses of different measures and provide an overview of the empirical findings on the effectiveness of capital controls in addressing the externalities identified by the theory literature, that is, in reducing financial fragility and enhancing macroeconomic stability. We also discuss strategies to deal with the endogeneity of capital controls in such statistical exercises. We conclude by providing an overview of the historical and current debates on the role of capital controls in macroeconomic management and their relationship to the academic literature.

A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. This paper considers whether partial capital controls and limited exchange rate flexibility allow for full monetary policy autonomy. We find partial capital controls do not generally allow for greater monetary control than with open capital accounts, unless they are quite extensive, but a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies.

This paper examines the effect of administrative restrictions on cross-border capital transactions. Using highly disaggregated data from the German balance of payments statistics for the period from 1999 through 2017, we document several stylized facts about the effectiveness of such capital control policies introduced by other countries. Capital controls are associated with economically and statistically significant declines in capital flows; they affect bilateral financial relationships along both the extensive and the intensive margin.

Capital inflows may lead to financial vulnerabilities by fuelling domestic credit booms, the so-called “capital flows-credit growth nexus”, which is of particular importance for emerging market economies. This paper makes two important innovations in understanding this nexus: 1) it adopts a sectoral approach; and 2) it assesses the effectiveness of different financial policies (macroprudential and capital controls) in taming the nexus. Using novel datasets on sectoral capital flows and policies, the results show that some measures can mitigate domestic credit growth, not only directly, but also indirectly, through the reduction of the sensitivity of credit to capital inflows. Furthermore, the results underscore the importance of a granular sectoral approach in identifying the full range of connections between capital flows and credit growth, as well as the appropriate policy response. The findings offer support on the use of a broad policy toolkit in taming the capital inflows and credit growth nexus.

In this paper, we present a model of the financial resource curse (i.e., episodes of abundant access to foreign capital coupled with weak productivity growth). We study a two-sector (i.e., tradable and non-tradable) small open economy. The tradable sector is the engine of growth, and productivity growth is increasing with the amount of labor employed by firms in the tradable sector. A period of large capital inflows, triggered by a fall in the interest rate, is associated with a consumption boom. While the increase in tradable consumption is financed through foreign borrowing, the increase in non-tradable consumption requires a shift of productive resources toward the non-tradable sector at the expenses of the tradable sector. The result is stagnant productivity growth. We show that capital controls can be welfare-enhancing and can be used as a second-best policy tool to mitigate the misallocation of resources during an episode of financial resource curse.

Using a panel data set for international corporate bonds and capital account restrictions in advanced and emerging economies, we show that restrictions on capital inflows produce a substantial and economically meaningful increase in corporate bond spreads, with a one-standard-deviation increase in our capital controls index increasing spreads by up to 35 basis points. The effect of capital controls on inflows differs across firms and across countries; the effect is particularly strong for firms that face more restricted access to alternative sources of external financing. Our findings establish a novel channel through which capital controls affect economic outcomes.

We develop a theory of capital controls as dynamic terms-of-trade manipulation. We study an infinite-horizon endowment economy with two countries. One country chooses taxes on international capital flows in order to maximize the welfare of its representative agent, while the other country is passive. We show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows. Although our theory of capital controls emphasizes interest rate manipulation, the pattern of borrowing and lending, per se, is irrelevant.

We investigate the effectiveness of capital controls using capital control indicators specific to several asset categories. The effectiveness of these policy instruments is analyzed along different angles. Specifically, we assess whether capital controls are effective in reducing the volume of capital flows, in reducing the probability of capital surges and flights, in strengthening financial stability, and in affecting the exchange rate. Our results point out three main conclusions. Capital controls are generally effective; the effectiveness of capital controls is differentiated for advanced and emerging economies; we find the largest effects on capital flows. We also show that capital controls are associated with a smaller probability of capital surges and flights, and, in emerging economies, with an undervalued exchange rate. We find some evidence that controls are associated with an improved financial stability, by reducing credit growth and FX currency loans: however, this evidence is not fully robust.

Despite its growing importance and potential financial stability implications, cross border CRE investment unlike other types of capital flows has seen little research, a gap this paper tries to fill. Leveraging on a unique private dataset of bilateral CRE transactions covering 894 country pairs available from 2007q1 to 2018q4, matched with recently available bilateral Balance of Payment flows dataset, it provides a comparative analysis of the covariates of bilateral CRE flows versus traditional flows. First, higher relative GDP growth in the host economy is a stronger covariate of CRE flows than other flows. In contrast, CRE flows are not associated with interest rates and the differential between source and host country, unlike portfolio flows, nor with host country institutional variables, unlike banking flows. Second, CRE flows appear to comove as much with the global financial cycle as portfolio and banking flows. Third, among gravity factors, contiguity and distance are core covariates of CRE flows, unlike colonial relationship or common language. The paper finally finds that tightening of macroprudential policy and liberalisation of capital controls on outflows in the source countries are associated with higher outward CRE flows, while host country policies are found insignificant.