Do capital controls boost EME´s resilience to financial crises?
Capital controls are again in vogue as a number of emerging markets have reintroduced these measures in recent years in response to a “flood” of international capital. Policymakers use these tools to buttress their economies against the “sudden stop” risk that accompanies international capital flows. Using a panel VAR model, we show that capital controls appear to make emerging market economies (EMEs) more resistant to financial crises by showing that lower post-crisis output loss is correlated with stronger capital controls. However, EMEs that employ capital controls seem to be more crisis-prone. Thus, policymakers should carefully evaluate whether the benefits of capital controls outweigh their costs.
Year of publication: |
2014-10-23
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Authors: | Goossens, Roman ; Mori, Rogério ; TELES, Vladimir Kuhl |
Institutions: | Escola de Economia de São Paulo (EESP), Fundação Getulio Vargas (FGV) |
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