Are price-based capital account regulations effective in developing countries?

Author: David, Antonio

Source: Applied Economics, Volume 41, Number 26, December 2009 , pp. 3375-3388(14)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

In this article, we evaluate the effectiveness of policy measures adopted by Chile and Colombia aiming to mitigate the deleterious effects of pro-cyclical capital flows. In the case of Chile, according to our GMM analysis, capital controls succeeded in reducing net short-term capital flows, but did not affect long-term flows. As far as Colombia is concerned, the regulations were capable of affecting total flows and also long-term ones. In addition, our cointegration models indicate that the regulations did not have a direct effect on the real exchange rate in the Chilean case. Nonetheless, the model used for Colombia did detect a direct impact of the capital controls on the real exchange rate. Therefore, our results do not seem to support the idea that those regulations were easily evaded.

Document Type: Research article

DOI: http://dx.doi.org/10.1080/00036840701367689

Affiliations: 1: Department of Economics, University of Essex, UK

Publication date: 2009-12-01

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