Capital Controls
Capital Controls
An Evaluation
This chapter investigates the literature on capital controls and economic performance. It presents evidence on episodes with capital controls that are not as well known as those of Chile and Malaysia. Capital controls on inflows appear to make monetary policy more independent, alter the composition of capital flows, and decrease real exchange rate pressures. These capital controls do not reduce the volume of net flows, and, hence, the current account balance. Chile emerges as the most successful example of capital controls on inflows. As long as capital flows to emerging markets remain volatile and potentially disruptive, the discussion of capital controls in academic and policy circles will remain alive, and hence there is a real need to evaluate their effectiveness, however defined.
Keywords: capital controls, economic performance, Chile, Malaysia, monetary policy, inflows, exchange rate, net flows, account balance
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