Capital Controls and Foreign Reserves against External Shocks: Combined or Alone?

Abstract: Long considered suboptimal, capital controls and FX interventions are now recognized as prudential measures. Yet, whether they should be used in combination remains an open question. Thanks to a rich dataset from 1950, we investigate how the response of FX reserves to an exogenous US monetary shock depends on capital controls. The response is insignificant with a very close capital account. By contrast, for a significant number of countries, FX interventions and capital controls are combined to tame the effects of an international financial shock. Yet, as countries open up financially, FX interventions replace capital controls. There is no one-sizes-fits-all recipe.

Keywords: Capital Controls; Foreign Exchange Interventions; Foreign Exchange Reserves; GlobalvFinancial Cycle (search for similar items in EconPapers)
JEL-codes: F31 F32 F38 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Capital controls and foreign reserves against external shocks: Combined or alone? (2023)
Working Paper: Capital controls and foreign reserves against external shocks: Combined or alone? (2023)
Working Paper: Capital controls and foreign reserves against external shocks: Combined or alone? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:849

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