## _wp11281

## Source details

**Canonical URL:** [_wp11281](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11281.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11281.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11281.pdf.json)

---

### Introduction and scope
- Study objective: quantitative assessment of the effect of inflow-control tightening and outflow liberalization implemented in selected EMEs in the 2000s in response to capital inflow surges.
- Countries analyzed: Brazil (foreign exchange tax in 2008), Colombia (unremunerated reserve requirements (URR), 2007–08), Thailand (URR, 2006–08), Korea (extensive outflow liberalization, 2005–08).
- Policy objectives evaluated:
  - (i) stem capital flows;
  - (ii) lengthen the maturity of capital inflows;
  - (iii) allow greater room for monetary authorities to raise interest rates;
  - (iv) ease currency appreciation pressure.
- Empirical approach: monthly indices tracking temporary price-based capital controls and other capital-account controls; generalized method of moments (GMM) and vector autoregressive (VAR) estimation used to quantify impacts.

### Key findings (summary)
- Mixed effectiveness: controls sometimes achieved objectives, sometimes they did not.
- Specific outcomes:
  - Colombia URR reduced the volume of capital inflows and affected short-term flows, helping to lengthen maturity of inflows (short-term effect).
  - Thailand’s URR affected the volume of net capital flows via increased outflows.
  - Brazil’s foreign exchange tax and Korea’s outflow liberalization do not appear to have had a significant impact on the volume or composition of flows (in the analyzed period).
  - Brazil and Colombia’s capital control policy provided greater room for monetary policy to raise interest rates (temporary effect).
  - None of the controls or outflow liberalization in the sample eased appreciation pressure.
  - Impacts were temporary in all cases.

### Explanations for limited effectiveness
- Targeting narrow components of flows: if targeted flows form a small share of total inflows, controls may not materially lower total volume or reduce appreciation pressure (example: Colombia—short-term flows moderated but appreciation persisted because the majority of flows—FDI—were exempt).
- Capital market development: well-developed markets facilitate circumvention (example: sophisticated derivative market in Brazil may have reduced tax effectiveness).
- Need for complementary measures: additional or different capital account policies can be required to achieve objectives (example: Thailand’s outflow liberalization complemented inflow measures).
- Temporary nature: controls are effective mainly in the short term; sustaining effectiveness may require adapting measures to close loopholes, but expanding controls risks greater distortions and adverse long-term growth effects.

### Methodological contributions and data
- New monthly index of capital controls based on de jure changes in regulations for high-frequency tracking.
- Separation of temporary (surge-response) capital controls from more permanent capital-account measures.
- Unified analytical framework across countries.
- Sample coverage:
  - Periods: 2000:Q1 to 2008:Q2 (quarterly) and January 2000 to August 2008 (monthly), except Colombia monthly from January 2004.
  - Sample ends before global financial crisis (September 2008).
- Indices constructed:
  - (i) price-based inflow controls (coverage index × effective tax rate);
  - (ii) other inflow controls (coded ±1 and weighted by asset types);
  - (iii) other outflow controls (same coding).
- Flow measurement and classification:
  - Assets classified into 13 types (direct investments, stocks, ADRs, bonds, public bonds, money market instruments, derivatives, collective investment funds, real estate, lending, bank lending, bank investments, other transactions).
  - Short-term flows: portfolio investments, derivative investments, short-term other investments.
  - Long-term flows: direct investments and non-short-term other investments (Colombia exception: long-term = direct investments; short-term = portfolio investments and all other investments).

### Empirical approach and key variables
- Estimators: OLS and GMM two-stage least squares (2SLS) with lagged instruments; VAR for dynamic effects.
- VAR endogenous variables: price-based capital control index; other inflow control index; other outflow control index; interest rate differential; capital flows (% of GDP); real exchange rates.
- VAR exogenous variables: domestic and foreign business cycles; EMBI Global sovereign spread; ICRG; VIX; lagged current account balance.
- Pull/push determinants considered: domestic interest rates, expected appreciation (three-month forward premium), business cycle, investment risk (EMBI, ICRG, VIX), current account balance.

### Country snapshots and salient numeric details

- Brazil
  - FDI ≈ 2.8 percent of GDP (Table 1).
  - Portfolio inflows: 0.3 percent of GDP during 2000–03; 1.2 percent of GDP during 2004–08.
  - Historical taxes: up to 7 percent on foreign borrowing and 9 percent on receipts from fixed-income funds; 5 percent tax in 1999 on foreign borrowing with maturities shorter than 90 days.
  - Financial operation tax (IOF) reintroduced March 2008 at 1.5 percent on fixed-income investments; extended in May 2008 to “simultaneous operations”; reduced to zero in October 2008.
  - Later developments (outside main study period): reintroduction of a 2 percent tax in October 2009; November 2009 tax of 1.5 percent on certain ADR trades, later increased to 6 percent and expanded to cover margin calls and foreign borrowing with maturities below one year.
- Colombia
  - Real GDP growth: -4 percent in 1999; 7 percent in 2006; 7.6 percent in 2007.
  - Exchange interventions: US$4.5 million from January through April 2007.
  - Inflows composition: FDI average 3.48 percent of GDP and about 95 percent of total inflows (Table 1).
  - URR introduced May 2007: 40 percent URR on foreign borrowing; extended to nonresidents’ portfolio investments a few weeks later.
  - Early withdrawal penalties: 1.6 percent to 9.4 percent of the reserve, depending on holding length.
  - Exemptions: nonresidents’ direct investments and Colombian institutional investors’ transactions exempt from URR.
  - Prudential measure: banks’ gross derivative positions limited to 500 percent of capital (ceiling later raised to 550 percent of capital in May 2008).
  - Adjustments: equities issued abroad exempted (June 2007); URR on initial public offerings eliminated and early-withdrawal penalties reduced (December 2007); URR on foreign borrowing increased to 50 percent in May 2008; minimum-stay requirement on inward FDI of two years; controls (except derivative-position ceiling) lifted September–October 2008.
- Thailand
  - The baht appreciated by 9 percent between 2005:Q3 and 2006:Q3.
  - Authorities built up net reserves of US$18 billion in 2006.
  - Main element: 30 percent URR (one-year) introduced December 19, 2006 (with exemption thresholds of US$20,000 and later exemptions for equities after one day).
  - By March 2008 (when URR lifted): ceiling on nonresidents’ investments in debt securities and loans of domestic banks reduced to B 10 million from B 50 million; limit on lending to nonresidents increased to B 300 million.
  - Outflow liberalization in 2007–08: ceilings on overseas portfolio investments and outward FDI raised; repatriation deadlines extended; foreign currency deposits and real estate investment rules relaxed (July 2007 and February 2008).
- Korea
  - Short-term external debt rose sharply since 2006 (Table 1); much in form of borrowing by foreign bank branches.
  - Causes: increased hedging by local shipbuilders starting 2004; carry/arbitrage by foreign branches borrowing dollars short-term and selling for won.
  - Outflow liberalization timeline:
    - Upper limit on insurance companies’ assets in foreign currency increased to 30 percent in March 2005.
    - Repatriation requirements relaxed in 2006.
    - Ceilings on individuals’ FDI and real estate purchases abroad removed in March 2006.
    - Approval requirements changed to notification; reporting requirements relaxed in 2007.

### Empirical findings — pull/push regressions (high-level)
- Most pull and push factors have expected signs; J-statistics do not reject instrument validity in many specifications.
- Interest rate and forward premium:
  - Higher domestic interest rate attracted capital inflows in Brazil, Colombia, and Thailand.
  - Expected appreciation (negative forward premium) significant for most countries.
  - Korea regressions: interest rates and forward premium had opposite sign due to inflows from Japan; controlling for Japan’s interest rate made signs insignificant.
- Business cycle and risk:
  - Recipient-country upturns attract flows; advanced-economy upturns reduce flows (significant for Brazil, Thailand, Korea).
  - Lower EMBI spread and lower VIX associated with increased inflows to Brazil, Colombia, and Korea.
  - ICRG index not strongly associated with capital flows in many specifications.

### Empirical findings — effectiveness of specific capital controls (selected results)
- General: some controls decrease volume of capital flows significantly; price-based controls generally do not have long-term effects in VARs.
- Brazil
  - Exchange tax helped maintain a higher interest rate differential but did not significantly affect net capital flows or real exchange rates.
  - Interest rate differential effect: "a one standard deviation shock to the tax index maintained an interest rate differential 0.1 percent to 0.2 percent larger than pretax level for two to five months."
  - Total volume did not change significantly after tax introduction; tax associated with slight currency appreciation.
  - Outflow liberalization: a negative one standard deviation shock to outflow control index encouraged long-term outflows of about 1 percent of GDP for one month; outflow liberalization associated with a decrease in net flows (VAR).
- Colombia
  - URR appears effective in reducing net capital flows in its initial phase but weak evidence over full sample.
  - Full sample (January 2004 to August 2008): no significant URR impact. Truncated sample through December 2007: URR reduced net capital flows and allowed higher interest rate differential.
  - URR altered composition: most reduction attributable to short-term inflows; URR also raised short-term outflows.
  - GMM confirms significant impact on short-term flows.
- Thailand
  - Outflow liberalization contributed to increased outflows and decreased net flows with a lag.
  - URR effective in reducing net total flows but did not affect total inflows; associated outflows equivalent to 2 percent of GDP for one quarter from a one standard deviation shock to URR index.
  - URR weakly associated with reduction in short-term inflows; immediate equity exemptions followed a 15 percent equity price decline after URR announcement.
  - Simultaneity of policies: contemporaneous inflow control tightening and outflow liberalization complicate identification.
- Korea
  - Outflow liberalization does not appear to have had a significant impact on volume of flows after controlling for endogeneity.
  - VAR shows no significant impact on interest rate differential or real exchange rates.
  - Disaggregated flows: outflow liberalization weakly associated with larger long-term outflows and smaller short-term outflows.

### VAR analysis — general conclusions
- VAR impulse responses computed for one standard deviation shocks; 95 percent confidence intervals reported.
- Two VAR specifications per country: (1) total net capital flows; (2) disaggregated flows.
- Key patterns:
  - Price-based controls generally do not have long-term effects — likely due to circumvention and temporariness.
  - Effectiveness can be time-limited; sample choice sensitive; postcrisis period omitted to avoid structural break.

### Key statistics from Table 1 (Average flows between 2000:Q1 and 2008:Q2; all flows expressed as a percent of GDP)
- Total (inflow): Brazil 2.26, Colombia 1.83, Thailand -0.56, Korea 1.99
- Total (inflow component): Brazil 3.76, Colombia 3.70, Thailand 1.35, Korea 3.24
- Total (outflow): Brazil -1.50, Colombia -1.87, Thailand -1.92, Korea -2.17
- Long-term flows (total): Brazil 1.83, Colombia 1.92, Thailand 1.81, Korea 0.18
- Short-term flows (total): Brazil 0.44, Colombia -0.09, Thailand -2.37, Korea 1.81
- Direct investment (total): Brazil 2.14, Colombia 2.67, Thailand 3.42, Korea -0.09
- Portfolio investment (total): Brazil 0.66, Colombia -0.35, Thailand 0.15, Korea 0.70
- Derivatives (total): Brazil -0.04, Colombia -0.08, Thailand -0.02, Korea -0.03
- Other investments (total): Brazil -0.49, Colombia -0.40, Thailand -4.12, Korea 1.42
- Other inv. short-term (total): Brazil -0.18, Colombia 0.35, Thailand -2.51, Korea 1.14

### Regression table highlights (select coefficient patterns preserved exactly as presented)
- Brazil (2000:M1–2008:M8; Table 3): Tax: -0.143 (OLS), -0.499 (2SLS) with standard errors (0.165), (0.365). Interest rate: 0.166 (OLS), 0.435 (2SLS) … 0.642 (2SLS, inflow) with (0.146), (0.275), (0.365)*. EMBI: -0.006 (OLS), -0.009 (2SLS) with (0.001)**, (0.003)**. Observations: 104.
- Colombia (2000:M1–2008:M8; Table 4): URR: -0.026 (OLS), -0.044 (2SLS) with (0.022), (0.027); short-term URR effects e.g., -0.051 (2SLS) with (0.022)**. Interest rate: 0.684 (OLS), 0.785 (2SLS) with (0.202)**, (0.303)**. Observations: 565.
- Thailand (2000:Q1–2008:Q2; Table 5): URR: -0.339 (OLS), -0.456 (2SLS) with (0.190)*(0.256). Outflow control (-1): 1.694 (OLS), 1.672 (2SLS) with (0.740)**, (0.919)*. Interest rate: 2.252 (OLS), 2.981 (2SLS) with (0.983)**, (1.294)**. Observations: 34.
- Korea (2000:M1–2008:M8; Table 6): Interest rate: -0.686 (OLS), -0.545 (2SLS) with (0.279)**, (0.289)*. Forward premium: 1.564 (OLS), 1.235 (2SLS) with (0.410)**, (0.465)**. Observations: 104.

### Lessons and policy implications
- Controls that do not cover the majority of inflows (e.g., exempting FDI) may fail to lower total flows or ease currency appreciation—example: Colombia.
- Designing effective controls is more difficult in countries with more developed financial markets (example: Brazil) because circumvention is easier.
- Restricting certain flows can trigger unintended market reactions (example: Thailand’s initial stock market crash and immediate partial reversal).
- Controls tend to be effective only in the short term and are better suited to temporary surges; persistent surges may require continual adaptation, risking distortions and growth costs.
- Capital controls carry administrative costs, distortions, and potential long-term growth costs; further microeconomic assessment is warranted to evaluate broader effects.

### Appendices — data, stationarity, and measures (selected notes)
- Monthly data availability: Brazil, Colombia (from January 2004), Korea; Thailand quarterly.
- Flows expressed as percent of GDP; outflows negative sign convention.
- Stationarity tests: augmented Dickey-Fuller performed; indicators of significance reported (***,**,*) in Appendix II; some variables treated in levels when unit roots could not be rejected.
- Appendix III lists selected capital account management measures by country including dates and details (examples preserved in country snapshots above).

*Source: _wp11281 - References (excerpted content) and associated appendices and figures as provided.*

### References .............................................................................................................

### _wp11281 - References

### Introduction and scope
- Study objective: quantitative assessment of the effect of inflow-control tightening and outflow liberalization implemented in selected EMEs in the 2000s in response to capital inflow surges.
- Countries analyzed: Brazil (foreign exchange tax in 2008), Colombia (unremunerated reserve requirements (URR), 2007–08), Thailand (URR, 2006–08), Korea (extensive outflow liberalization, 2005–08).
- Four policy objectives evaluated:
  - (i) stem capital flows;
  - (ii) lengthen the maturity of capital inflows;
  - (iii) allow greater room for monetary authorities to raise interest rates;
  - (iv) ease currency appreciation pressure.
- Empirical approach: construction of monthly indices tracking temporary price-based capital controls and other capital-account controls; generalized method of moments (GMM) and vector autoregressive (VAR) estimation used to quantify impacts.

### Key findings (enumerated)
- Mixed effectiveness: controls sometimes achieved objectives, sometimes they did not.
- Specific findings:
  - Colombia URR reduced the volume of capital inflows and affected short-term flows, helping to lengthen maturity of inflows.
  - Thailand’s URR affected the volume of net capital flows, with the effect materializing through increased outflows.
  - Brazil’s foreign exchange tax and Korea’s outflow liberalization do not appear to have had a significant impact on the volume or composition of flows.
  - Brazil and Colombia’s capital control policy provided greater room for monetary policy to raise interest rates.
  - None of the controls or outflow liberalization in the sample eased appreciation pressure.
  - Other capital account policies can help achieve objectives (example: outflow liberalization in Thailand increased outflows and reduced net capital flows; general inflow controls and outflow liberalization in Thailand helped maintain monetary policy autonomy).
  - The impact of the policies was temporary in all cases.

### Explanations for limited effectiveness (enumerated)
- Targeting narrow components of flows: if targeted flows form a small share of total inflows, controls may not materially lower total volume or reduce appreciation pressure (example: Colombia—short-term flows moderated but appreciation persisted because the majority of flows—FDI—were exempt).
- Capital market development: well-developed markets facilitate circumvention (example: sophisticated derivative market in Brazil may have reduced tax effectiveness).
- Need for complementary measures: additional or different capital account policies can be required to achieve objectives (example: Thailand’s outflow liberalization complemented inflow measures).
- Temporary nature: controls are effective mainly in the short term; sustaining effectiveness may require adapting measures to close loopholes, but expanding controls risks greater distortions and adverse long-term growth effects.

### Methodological contributions (enumerated)
- New monthly index of capital controls based on de jure changes in regulations allowing high-frequency tracking of capital control intensity.
- Separation of temporary (surge-response) capital controls from more permanent capital-account measures for distinct analysis.
- Unified analytical framework applied across countries to derive general conclusions on effectiveness of recent capital control episodes.

### Organization of the paper (as provided)
- Section II: country responses to capital inflows during the past decade.
- Section III: construction of the capital control index.
- Section IV: determinants of capital flow volume via GMM estimation.
- Section V: VAR results assessing effectiveness of capital controls on macroeconomic policy objectives.
- Section VI: conclusions.

*Source: _wp11281 - References (excerpted content). *

### introduction of additional capital controls in 2006 (Figure 1). Although nonresidents had long

### _wp11281 - introduction of additional capital controls in 2006 (Figure 1). Although nonresidents had long

### Thailand: capital inflows, intervention, and controls (2003–2008)
- Inflows persisted and "the baht appreciated by 9 percent between 2005:Q3 and 2006:Q3."
- Authorities intervened extensively in the foreign exchange market, "building up net reserves of US$18 billion in 2006."
- Additional limits and restrictions:
  - "Additional limits on nonresidents’ baht deposits were introduced in 2003."
  - In November 2006, "banks’ issuance and sale of bills of exchange in baht with nonresidents was limited."
  - In December 2006, "a restriction was placed on nonresidents’ short-term investments in baht financial products issued by local banks exceeding B 50 million without real underlying trade or investment."
  - "Ultimately, the authorities introduced controls on all capital inflows except FDI in December 2006."
- Status of the capital account after measures:
  - "Despite gradual easing, the capital account remains largely controlled."
  - "Most outward capital transactions and many inward transactions are subject to ceilings above which BOT approval must be obtained."
  - "Foreign equity investment in nonfinancial Thai corporations may not exceed 49 percent, except for some sectors where 100 percent foreign ownership is allowed; lower limits apply to investments in financial corporations and in certain other sectors."

### The 30 percent URR (unremunerated reserve requirement) and related tax treatment
- Main feature: "The main element of the new capital controls was a 30 percent URR."
- Operational rules:
  - "Financial institutions were required to withhold 30 percent of all foreign currency purchased or exchanged against baht exceeding US$20,000."
  - "The amount withheld was refunded after one year on proof that the funds had been kept in Thailand for at least one year."
  - To discourage short-term inflows: "funds transferred abroad within one year were effectively taxed at a rate of 10 percent because only two-thirds of the 30 percent withheld could be refunded."
- Adjustments and exemptions:
  - "The URR, which was adjusted several times until it was finally eliminated in early 2008, was complemented by other controls."
  - "Stock market equity inflows were exempt after one day because the introduction of the URR resulted in a sharp decline (15 percent) in equity prices."
  - "Strict limits were imposed on domestic banks’ cross-border lending and borrowing in baht."
  - By March 2008 (when URR was lifted):
    - "the ceiling on nonresidents’ investments in debt securities and loans of domestic banks had been reduced to B 10 million from B 50 million;"
    - "the limit on lending to nonresidents had been increased to B 300 million."

### Liberalization of capital outflows (Thailand, 2007–08)
- Measures to stem appreciation pressures via outflow liberalization:
  - "During 2007–08, the BOT raised the limit on overseas portfolio investments by residents, including certain institutional investors and Thai-listed companies."
  - "The ceiling on outward FDI was also raised for investments in affiliated companies in January 2007."
  - "The deadline for repatriating foreign exchange proceeds was extended in February, allowing residents to keep their proceeds abroad in foreign currency longer."
  - "Regulations governing residents’ foreign currency deposits and real estate investments were relaxed in July 2007 and February 2008."

### Korea: liberalization and short-term external debt dynamics
- Economic context:
  - "In the decade between the Asian and the recent global crisis, Korea has made an impressive economic recovery. Strong growth led by exports and a declining current account surplus characterized the period."
  - "Large capital inflows, attracted by stable fundamentals and well-developed and generally open financial markets, allowed significant reserve accumulation in the context of a generally floating exchange rate arrangement and occasional interventions since the early 2000s (Figure 1)."
- Short-term external debt and hedging:
  - "Short-term external debt, largely in the form of borrowing by foreign bank branches, has risen sharply since 2006 (Table 1)."
  - Causes:
    - Increased hedging by local shipbuilders: "Korean shipbuilders only began to hedge their foreign exchange exposure in 2004 and have increased their hedging ratio in anticipation of continued won appreciation."
    - Borrowing by foreign bank branches to engage in carry/arbitrage: branches "have borrowed dollars short-term, sold these dollars for won on the spot market, then bought certificates of deposit or other domestic bonds and sold the won forward for dollars."
- Gradual liberalization of outflows:
  - "Against the backdrop of strong capital inflows, the authorities progressively liberalized capital outflows."
  - Timeline and measures:
    - "The upper limit on Korean insurance companies’ assets in foreign currency was increased to 30 percent in March 2005."
    - "Repatriation requirements on proceeds from residents’ capital transactions abroad were relaxed in 2006."
    - "Limits were gradually increased on residents’ investments abroad and finally eliminated by removing the ceilings on individuals’ FDI and real estate purchases abroad in March 2006."
    - "In the same year, the previous approval requirement on certain capital transactions was changed to a notification requirement."
    - "In 2007, reporting requirements related to capital transactions were further relaxed, allowing more freedom in extending won loans to nonresidents."

### Measuring the intensity of capital controls — indices and construction
- Indices summarized:
  - (i) price-based inflow controls;
  - (ii) other inflow controls; and
  - (iii) other outflow controls.
- Data source and normalization:
  - "Each index tracks cumulative changes in regulations on capital transactions as reported in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) database."
  - "For each country, all indices are normalized at zero at the beginning of 2000. The restrictiveness is not comparable across countries."
- Price-based inflow control index:
  - Composed of "a coverage index and effective tax rates."
  - Coverage index: "counts the number of asset types that are subject to the control" and increments depend on number of affected asset types.
  - Examples reported in Figure 2:
    - "Brazil’s tax was introduced in March 2008 at the rate of 1.5 percent and maintained at that level until it was lifted in October 2008."
    - "Colombia introduced a six-month 40 percent URR in May 2007. Although some transactions were exempted in June and December 2007, the URR was raised to 50 percent in May 2008 and remained at that level until October 2008."
    - "Thailand’s one-year 30 percent URR was implemented in December 2006. The URR was adjusted by allowing several exemptions, but the rate stayed at 30 percent until it was lifted in March 2008."
  - Effective tax rates definition:
    - "For the exchange tax in Brazil, the actual tax rate is used."
    - "For the URR in Colombia and Thailand, the effective tax rate refers to the tax equivalent URR rate, which is defined by ݅ൌ߬ כ ௨ ଵି௨ ௞ ௠    ,    where ݅ כ is a foreign interest rate the investment could earn elsewhere,ݑ  is the percent of flows subject to the URR, ݇ is the holding period of deposits at a central bank, and ݉ is the maturity of the investments. See De Gregorio, Edwards, and Valdés (2000) for more details."
  - "The index of price-based inflow controls in the analysis is obtained by multiplying the effective tax rate by the coverage index reported in Figure 2."
- Other inflow and outflow control indices:
  - Construction:
    - "We code each change in regulations on capital transactions as reported in the 'changes' section of the AREAER as 1 if the regulation is tightened or –1 if it is relaxed."
    - "When multiple measures were introduced on the same day, each measure is counted as one change. The changes are then weighted by the number of affected asset types."
    - Example: "a change that liberalizes both FDI and equity purchases by nonresidents receives a value of –2 for inflow controls."
    - Index accounts for timing within month: e.g., "if the regulation went into effect the 20th day of a month, the index considers one-third of the change to take place in that month and two-thirds in the following month."
  - Outcome summary: "Inflow controls were tightened in Colombia and Thailand starting in the early 2000s, whereas Brazil and Korea eased controls on inflows during the same period. In both Brazil and Thailand, other inflow controls were tightened later, along with the introduction of a price-based control. This pattern indicates that price-based controls are usually implemented as a part of a broad policy package. Controls on outflows were liberalized in most countries, especially in Brazil and Korea, starting in the mid-2000s. Thailand shifted its focus from inflow controls to outflow liberalization in 2008."

### Data and sample period for empirical analysis
- Sample coverage:
  - "Our analysis covers the period 2000:Q1 to 2008:Q2 with quarterly data and January 2000 to August 2008 with monthly data, except for Colombia, for which the monthly data start in January 2004."
  - "The sample period ends before the onset of the global financial crisis, in September 2008, to avoid any potential structural break it may have created."
- Flow measurement:
  - "The data on the volume and the composition of capital flows are taken from the IMF’s Balance of Payments Statistics or similar monthly statistics from national central banks."
  - "Total flows are determined from flows in direct investments, portfolio investments, derivative investments, and other investments. In the balance of payments tables, inflows refer to..."
  - Assets classification used in weighting: "Assets are classified into 13 types: direct investments, stocks, ADRs, bonds, public bonds, money market instruments, derivatives, collective investment funds, real estate, lending, bank lending, bank investments, and other transactions."

*Italic: IMF working paper content unit _wp11281 - introduction of additional capital controls in 2006 (Figure 1). Although nonresidents had long (PDF chapter/section).*

### Appendix III summarizes the main changes in capital controls considered for the indices.

### _wp11281 - Appendix III summarizes the main changes in capital controls considered for the indices.

### Data, definitions, and measurement
- Monthly data availability: Brazil, Colombia, and Korea. Colombia monthly analysis starts in January 2004 due to data limitations.
- Colombia: use Balanza Cambiaria data covering foreign exchange transactions regardless of residency; differences with balance of payments data noted (see Clements and Kamil (2009) in source).
- Bank of Thailand publishes monthly net private capital flows but series not used because it does not fully separate inflows from outflows or report composition.
- Flows expressed as a percent of GDP. Outflows expressed with a negative sign; higher absolute value = larger outflows.
- Private capital flows: obtained by stripping out public sector (monetary authority and general government) flows in portfolio investment assets, other investment assets, and other investment liabilities. Government sector’s portfolio investment liabilities are included.
- Maturity classification:
  - Short-term: all portfolio investments, derivative investments, and short-term other investments.
  - Long-term: direct investments and non-short-term other investments.
  - Colombia exception: long-term flows = direct investments; short-term flows = portfolio investments and all other investments.
- Monthly GDP constructed by extrapolating quarterly GDP from industrial production index. (Appendix 1 in source.)

### Pull and push determinants (variables and expectations)
- Pull factors included: domestic interest rates, expected appreciation of a currency, business cycles, investment risks, and current account balance.
- Push factors: corresponding variables in advanced economies; United States used as benchmark foreign country.
- Interest rate and exchange rate measures:
  - Domestic and U.S. money market interest rates used.
  - Expected exchange rate measured by three-month forward exchange rate premium (difference between forward and spot rates).
  - Expectation: higher domestic interest rate, lower foreign interest rate, and expected appreciation (lower forward premium) → increase in capital flows, especially portfolio flows.
- Business cycle: cyclical component of log real GDP via Hodrick-Prescott filter (smoothing factor: 1,600 for quarterly, 14,400 for monthly).
- Investment risk indicators:
  - JPMorgan’s EMBI global sovereign spread.
  - International Country Risk Guide (ICRG) composite risk rating.
  - Chicago Board Options Exchange Volatility (VIX) Index.
  - Interpretation: lower EMBI spread, higher ICRG index, and lower VIX → lower investment risk → attract foreign capital.
- Current account balance: larger current account deficit implies more funds available for nonresidents; expected negative relationship with capital flows.

### Time-series properties and estimation approach
- Most variables defined as stationary. First-difference series used for capital control indices and ICRG index.
- Some series (real exchange rates, interest rate differentials, EMBI spreads, VIX) could not reject unit root null during sample period; used in levels for results.
- Regression strategy:
  - Dependent variables: net flows (inflows minus outflows) and inflows as percent of GDP; also separate short-term and long-term flows.
  - Estimators: OLS and GMM two-stage least squares (2SLS) using lagged instruments to address endogeneity.
  - Monthly regressions reported where available.
  - VAR framework used to assess dynamic effects and policy-objective attainment (volume, maturity, interest differentials, real exchange rates).
  - VAR endogenous variables: price-based capital control index; other inflow control index; other outflow control index; interest rate differential (money market rate difference vs benchmark); capital flows (% of GDP); real exchange rates relative to benchmark.
  - VAR exogenous variables: domestic and foreign business cycles; EMBI Global sovereign spread; ICRG composite index; VIX index; lagged current account balance.
  - VAR sample: 2000:Q1 (January) to 2008:Q2 (August) with one lag (Schwarz information criterion); sample truncated prior to global financial turmoil of 2008.

### Empirical findings — pull/push regressions
- General: most pull and push factors have expected signs; J-statistics do not reject instrument validity.
- Interest rates and forward premium:
  - Higher domestic interest rate attracted capital inflows in Brazil, Colombia, and Thailand.
  - Foreign interest rate barely significant, generally negative sign.
  - Expected appreciation (negative forward premium) significant for most countries.
  - In Korea regressions: interest rates and forward premium had opposite sign due to inflows from Japan; controlling for Japan’s interest rate made signs insignificant.
- Business cycle: recipient-country upturns attract flows; advanced-economy upturns reduce flows. Significant for Brazil, Thailand, and Korea.
- Risk indicators:
  - Lower EMBI spread and lower VIX associated with increased inflows to Brazil, Colombia, and Korea.
  - ICRG index not strongly associated with capital flows.
- Current account balance: included as determinant; expected negative relationship.

### Empirical findings — effectiveness of specific capital controls (GMM and VAR highlights)
- Overall: some capital controls appear to decrease volume of capital flows significantly; effects vary by country and measure. Price-based controls generally do not have long-term effects in the VAR.
- Brazil:
  - Exchange tax helped maintain a higher interest rate differential but did not significantly affect net capital flows or real exchange rates.
  - Interest rate differential effect: a one standard deviation shock to the tax index maintained an interest rate differential 0.1 percent to 0.2 percent larger than pretax level for two to five months.
  - Total volume of capital flows did not change significantly after tax introduction; tax associated with slight currency appreciation.
  - Tax did not lengthen maturity of flows; no significant change across disaggregated flow types.
  - Outflow control liberalization: a negative one standard deviation shock to outflow control index encouraged long-term outflows of about 1 percent of GDP for one month; outflow liberalization associated with a decrease in net flows (VAR).
  - Interpretation: sophisticated local derivative markets facilitated circumvention; effectiveness short-lived in liberalized markets.
- Colombia:
  - URR appears effective in reducing net capital flows in its initial phase but weak evidence over full sample.
  - Full sample (January 2004 to August 2008): no significant URR impact. Truncated sample through December 2007 (about six months after URR introduction): URR reduced net capital flows and allowed higher interest rate differential.
  - URR altered composition: most reduction attributable to short-term inflows; URR also raised short-term outflows. Direct investments exempt → long-term flows not significantly affected.
  - GMM confirms significant impact on short-term flows (Table 4 in source).
  - Earlier inflow controls before URR were not effective.
- Thailand:
  - Liberalization of outflow controls seems to have contributed to an increase in outflows and a decrease in net flows with a lag.
  - URR effective in reducing net total flows but did not affect total inflows.
  - Note: Thailand regressions include outflow control index with one-quarter lag; contemporaneous specification gave opposite sign, likely due to simultaneous removal of inflow controls and outflow liberalization.
- Korea:
  - Pull/push factors significant (domestic interest rate, forward premium, business cycle, EMBI spread) though some signs affected by Japanese inflows; controlling for Japan’s interest rate changes those results.
  - A lower EMBI sovereign spread and lower VIX encouraged inflows.

### VAR analysis — general conclusions
- VAR impulse responses computed for one standard deviation shocks; 95 percent confidence intervals reported (± two standard error bands).
- Two VAR specifications per country: (1) total net capital flows; (2) disaggregated flows (short-term inflows/outflows, long-term inflows/outflows).
- Key patterns:
  - Price-based controls generally do not have long-term effects — likely due to circumvention and temporariness of measures.
  - Effectiveness of measures can be time-limited; truncation before 2008 crisis may overestimate some impacts because price-based controls erode over time.
  - Sample choice sensitive; postcrisis period omitted because of dominant unmeasurable crisis factors and nonrobust postcrisis results.

*Source: _wp11281 - Appendix III summarizes the main changes in capital controls considered for the indices.*

### conclusion that other inflow controls prior to the URR were ineffective, and the URR had

### _wp11281 - conclusion that other inflow controls prior to the URR were ineffective, and the URR had

### Colombia
- Other inflow controls prior to the URR were ineffective; the URR had only a short-lived impact.
- Impulse response to a one standard deviation shock to the URR policy:
  - Reduced total net capital flows by 0.2 percent of GDP for two to four months.
  - Allowed a marginally significant increase in the interest rate differential, which lasted less than two months.
- URR did not stem appreciation pressure even in the short term.
- Majority of capital flows to Colombia comprised direct investments (Table 1), which were not targeted by the URR; this limited the URR’s ability to reduce appreciation pressures.

### Thailand
- URR negatively affected the volume of net capital flows by increasing outflows.
  - A one standard deviation shock to the URR index caused capital outflows equivalent to 2 percent of GDP for one quarter.
- URR did not significantly decrease inflows, though it was weakly associated with a reduction in short-term inflows.
- GMM estimation indicates the URR was effective in stemming the total volume of flows (net flows) but did not significantly affect inflows.
- Outflow effects likely reflect a loss of residents’ confidence; the December 2006 URR announcement triggered a sharp drop in stock prices and immediate removal of controls on equities.
- Simultaneity of policies: capital outflow liberalization occurred approximately the same period as the URR and may confound results.
- Other contemporaneous controls:
  - A one standard deviation shock to the inflow control index allowed a 0.4 percent wider interest rate differential for three quarters.
  - A one standard deviation shock to the outflow control index allowed a 0.2 percent wider interest rate differential for two quarters.
- All studies concur that the URR could not stem appreciation.

### Korea
- Outflow liberalization does not appear to have had a significant impact on the volume of flows after controlling for endogeneity.
- VAR estimation shows outflow liberalization had no significant impact on either the interest rate differential or real exchange rates.
- Disaggregated flows suggest outflow liberalization (a negative shock in the outflow control index) is weakly associated with:
  - A larger volume of long-term outflows.
  - Smaller short-term outflows.
- Inefficiency may reflect that major capital account changes occurred in the 1990s; 2000s changes were relatively moderate.

### Cross-country summary findings
- Price-based controls on inflows were rarely effective in discouraging capital inflows or altering their composition; they were more successful in maintaining monetary policy independence.
  - Brazil’s exchange tax generally had no significant impact except for allowing higher interest rates.
  - Colombia’s URR had an initial effect on the volume and composition of capital flows, but the effectiveness quickly dissipated; it also contributed to maintaining higher domestic interest rates.
  - Thailand’s URR led to an increase in capital outflows; because this reduced net capital flows, the policy was effective, albeit not through the expected channel (reducing inflows).
- Other inflow controls helped achieve part of the objectives of the price-based measure—namely, allowing a higher interest rate differential in Thailand.
- Capital controls or outflow control liberalization could not stem the appreciation of the currency in any of the examined countries.
- Liberalizing outflow controls increased outflows, and thus helped reduce net flows, in Thailand and contributed to maintaining higher domestic interest rates for two to three quarters; the policy was not effective in Korea.

### Key statistics from Table 1 (Average flows between 2000:Q1 and 2008:Q2; all flows expressed as a percent of GDP)
- Total (inflow): Brazil 2.26, Colombia 1.83, Thailand -0.56, Korea 1.99
- Total (inflow component): Brazil 3.76, Colombia 3.70, Thailand 1.35, Korea 3.24
- Total (outflow): Brazil -1.50, Colombia -1.87, Thailand -1.92, Korea -2.17
- Long-term flows (total): Brazil 1.83, Colombia 1.92, Thailand 1.81, Korea 0.18
- Short-term flows (total): Brazil 0.44, Colombia -0.09, Thailand -2.37, Korea 1.81
- Direct investment (total): Brazil 2.14, Colombia 2.67, Thailand 3.42, Korea -0.09
- Portfolio investment (total): Brazil 0.66, Colombia -0.35, Thailand 0.15, Korea 0.70
- Derivatives (total): Brazil -0.04, Colombia -0.08, Thailand -0.02, Korea -0.03
- Other investments (total): Brazil -0.49, Colombia -0.40, Thailand -4.12, Korea 1.42
- Other inv. short-term (total): Brazil -0.18, Colombia 0.35, Thailand -2.51, Korea 1.14

### Lessons and policy implications
- Capital controls that do not cover the majority of capital inflows (for example, by exempting direct investments as in Colombia) may fail to lower the total volume of flows or ease currency appreciation pressures, even if they reduce targeted flows.
- Designing effective controls is more difficult in countries with more developed financial markets (such as Brazil) because market participants can more easily circumvent them.
- Restricting certain flows can lead to unintended market reactions (illustrated by Thailand’s initial stock market crash and overnight partial policy reversal).
- Controls tend to be effective only in the short term and are better suited to temporary surges in capital flows; persistent surges may require controls to be constantly adapted to close loopholes and prevent circumvention.
- Capital controls often entail administrative costs, distortions, and potential long-term growth costs; some past controls led to misallocation of funds.
- Further assessment using microeconomic data appears necessary to fully evaluate capital control policies beyond their macroeconomic effectiveness.

*Source: _wp11281 - conclusion that other inflow controls prior to the URR were ineffective, and the URR had*

### 1.5 percent tax on

### 1.5 percent tax on foreign exchange transactions related to fixed-income investments

### Overview
- Content focuses on policy measures used by Brazil, Colombia, Thailand, and Korea to influence capital flows, including a 1.5 percent tax (Brazil), unremunerated reserve requirements (URRs) (Colombia, Thailand), and outflow liberalization episodes (Korea, Thailand).
- Indices and empirical models are used to analyze the effects of taxes, URRs, inflow controls, and outflow controls on capital flows, interest rate differentials, and real exchange rates.
- Periods covered in regressions and impulse response analyses vary by country (noted alongside individual tables and figures).

### Country-specific policy measures and settings (as reported)
- Brazil: 1.5 percent tax on foreign exchange transactions related to fixed-income investments.
- Colombia (2007:Q2–2007:Q4): 40 percent, six-month URR on foreign borrowing and portfolio inflows; two-year minimum stay requirement for FDI; limit on banks’ gross derivative positions to 500 percent of capital.
- Thailand (2006:Q4–2008:Q1): 30 percent, one-year URR on foreign borrowing and portfolio inflows.
- Korea (2004–08): Outflow liberalization; noted "No, but increased long-term outflows" for outflow liberalization effect in summary table.
- Summary note: The GMM analysis finds that outflow liberalization had a significant impact (at the 10 percent level) on the volume of net flows by increasing outflows in Thailand. (footnote 1/)

### Regression analyses — key variables and notation
- Dependent variables: total flows, short-term flows, net and inflow variants (expressed as percent of GDP).
- Regressors include: Interest rate; U.S. interest rate; Forward premium; Tax (index); URR; Inflow control index; Outflow control index; Business cycle; U.S. business cycle; EMBI; ICRG; Current account; VIX.
- Estimation methods: OLS and 2SLS reported side-by-side in tables for each country.
- White’s heteroscedasticity-consistent standard errors reported in parentheses. ** and * denote significance at the 5 percent and 10 percent level, respectively.

### Selected coefficient magnitudes and significance (preserve exactly as presented)

Brazil (period 2000:M1–2008:M8; Table 3)
- Constant: -17.558 (OLS), -12.836 (2SLS) … 36.274 (2SLS, inflow, last column). Standard errors in parentheses (e.g., (16.498), (24.512), (35.744)).
- Interest rate: 0.166 (OLS), 0.435 (2SLS) … 0.642 (2SLS, inflow) with (0.146), (0.275), (0.365)* respectively.
- Forward premium: -0.332 (OLS), -1.708 (2SLS), with (0.302), (0.853)** etc.; several entries marked ** or *.
- Tax: -0.143 (OLS), -0.499 (2SLS) with (0.165), (0.365).
- Business cycle: 36.863 (OLS), 47.016 (2SLS), 64.904 (OLS), 79.526 (2SLS) … with significance indicators and standard errors (e.g., (21.884)*, (37.227)).
- EMBI: -0.006 (OLS), -0.009 (2SLS) with (0.001)** and (0.003)**.
- Current account: -0.834 (OLS), -2.097 (2SLS) with (0.117)**, (0.660)**.
- VIX: 0.008 (OLS), -0.214 (2SLS) with (0.071), (0.199).
- R-squared values: 0.591 (OLS), 0.270 (2SLS) … Adjusted R-squared: 0.537, 0.174.
- Observations: 104 across specifications. J-statistic examples: 2.638, 0.646, 2.292, 0.797 with [p-value] entries [0.620][0.958][0.682][0.939].

Colombia (period 2000:M1–2008:M8; Table 4)
- Constant: 17.990 (OLS), 16.956 (2SLS) … -3.900 (2SLS, last column). Standard errors (e.g., (9.037)*(10.701)).
- Interest rate: 0.684 (OLS), 0.785 (2SLS), etc., with (0.202)**, (0.303)**.
- Forward premium: -0.401 (OLS), -0.375 (2SLS) with (0.199)**, (0.230).
- URR: -0.026 (OLS), -0.044 (2SLS) with (0.022), (0.027); individual URR effects show significance in some short-term specifications (e.g., -0.024 (OLS) with (0.016), -0.051 (2SLS) with (0.022)**).
- Outflow control: -0.164 (OLS), -0.591 (2SLS) … with (0.156), (1.121).
- EMBI: 0.001 (OLS), 0.001 (2SLS) with (0.002), (0.003).
- ICRG: -20.570 (OLS), -20.328 (2SLS) with (9.341)**, (10.713)*.
- VIX: -0.111 (OLS), -0.105 (2SLS) with (0.031)**, (0.062)*.
- R-squared: 0.441 (OLS), 0.423 (2SLS). Observations: 565. J-statistics: 2.520, 2.485, 4.393, 3.515 with [p-value] [0.774][0.779][0.494][0.621].

Thailand (period 2000:Q1–2008:Q2; Table 5)
- Constant: 20.761 (OLS), -36.113 (2SLS) … 40.449 (2SLS, last column).
- Interest rate: 2.252 (OLS), 2.981 (2SLS) with (0.983)**, (1.294)**.
- Forward premium: -1.508 (OLS), -1.225 (2SLS) with (0.644)**, (0.702)*.
- URR: -0.339 (OLS), -0.456 (2SLS) with (0.190)*(0.256).
- Outflow control (-1): 1.694 (OLS), 1.672 (2SLS) with (0.740)**, (0.919)*.
- VIX: -1.055 (OLS), -0.783 (2SLS) with (0.157)**, (0.344)**.
- R-squared: 0.713 (OLS), 0.645 (2SLS). Observations: 34. J-statistics: 6.275, 7.468, 8.184, 10.176 with [p-value] [0.393][0.280][0.225][0.117].

Korea (period 2000:M1–2008:M8; Table 6)
- Constant: 19.497 (OLS), 17.556 (2SLS) ... 9.393 (2SLS, last column).
- Interest rate: -0.686 (OLS), -0.545 (2SLS) with (0.279)**, (0.289)*.
- U.S. interest rate: 0.315 (OLS), 0.245 (2SLS) with (0.121)**, (0.124)*.
- Forward premium: 1.564 (OLS), 1.235 (2SLS) with (0.410)**, (0.465)**.
- Inflow control: 0.271 (OLS), 0.320 (2SLS); Outflow control: -0.016 (OLS), -0.090 (2SLS).
- Current account: -0.583 (OLS), -0.252 (2SLS) with (0.150)**, (0.243).
- VIX: -0.046 (OLS), -0.040 (2SLS) with (0.021)**, (0.023)*.
- R-squared: 0.263 (OLS), 0.220 (2SLS). Observations: 104. J-statistics: 1.909, 3.749, 0.324, 2.959 with [p-value] [0.862][0.586][0.997][0.706].

### Impulse response and dynamics (figures and descriptive notes)
- Figure 1: Private Capital Flows — plots capital inflows and outflows (in percent of GDP, left), interest rate differential (in percent, left), and nominal exchange rate (national currency per U.S. dollar, right). Shaded areas indicate tax or URR periods.
- Figures 3–12: Responses to shocks (one standard deviation) to tax index, URR index, inflow control index, and outflow control index. Estimations include one lag. Dashed lines show 95 percent confidence intervals.
  - Endogenous variables in VARs include combinations of policy indices (tax index, URR index, inflow/outflow control indices), interest rate differentials, net capital flows (and decompositions: short-term inflows, short-term outflows, long-term inflows, long-term outflows), and real exchange rates.
  - Exogenous variables include domestic business cycle, U.S. business cycle, EMBI spread, ICRG, VIX, and lagged current account balance.
- Specific dynamic patterns shown:
  - Brazil: Responses to a one standard deviation shock to the tax index include movements in tax index, inflow and outflow control indices, interest rate differential, total net capital flows (in percent of GDP), real exchange rate (in log), and composition (short-term inflows, short-term outflows, long-term inflows, long-term outflows). Panels report horizons (e.g., 2,4,6,... up to 20) with scales indicated (e.g., Tax index (coverage and effective rate) ranges from -.1 to .4; Total net capital flows ranges from -.8 to .8).
  - Colombia: Responses to URR index shocks reported for period 2004:M1–2008:M8, with a separate figure for six months after introduction (period 2004:M1–2007:M12). Panels include URR index, inflow control index, outflow control index, interest rate differential, total net capital flows (in percent of GDP), and real exchange rate (in log).
  - Thailand: Responses to URR index shocks for period 2000:Q1–2008:Q2; composition figures separate short-term and long-term flows.
  - Korea: Responses to outflow control index shocks for period 2000:M1–2008:M8; composition figures decompose flows into short-term and long-term inflows/outflows.
- Notes clarify long-term flows refer to direct investment, and short-term flows refer to the sum of portfolio investment and other investment in composition figures.

### Key empirical patterns and statistical notes (as presented)
- Taxes and URRs are operationalized via indices capturing coverage and tax-equivalent rates.
- In several country regressions, interest rate differentials, forward premium, EMBI spreads, VIX, and current account are statistically significant predictors of capital flows (significance flagged with ** or *).
- URR effects: Colombia shows URR coefficients around -0.026 to -0.051 depending on specification; in some short-term specifications URR coefficients are significant at the 5 percent or 10 percent level.
- Outflow controls and outflow liberalization: Thailand and Korea results indicate outflow policy shifts affect volumes and composition of flows (including statistically significant increases in outflows in some specifications).
- Model diagnostics: J-statistics and p-values reported for overidentification tests in 2SLS specifications (examples include [p-value] [0.620][0.958][0.682][0.939] for Brazil; [0.774][0.779][0.494][0.621] for Colombia; [0.393][0.280][0.225][0.117] for Thailand; [0.862][0.586][0.997][0.706] for Korea).

### Figures and indices interpretation notes
- Evolution of Capital Controls (Figure 2): indices plotted over time for price-based inflow controls, other inflow controls, and outflow controls; higher values indicate more restrictions or broader coverage (tax and URR indices: higher values indicate regulation applies to more types of inflows).
- Response figures show horizons at labeled integers (e.g., 2,4,6,...20) and variable-specific scales (examples: tax index plots from -.1 to .4; URR index plots from -4 to 8 in some panels for Colombia).

*Source: Authors’ analyses and calculations (as presented in the supplied content).*

### Appendix I. Series Definition, Source, and Coverage

### Appendix I. Series Definition, Source, and Coverage

### Variables, Frequency, Source, Description/Notes
- Private capital flows
  - Country: All
  - Freq.: Q
  - Source: IMF BOPS
  - Description/Notes: Private capital flows are obtained by stripping out capital flows (portfolio investment liabilities and other investments liabilities and assets) by general government and monetary authority.
- Private capital flows (Brazil)
  - Country: Brazil
  - Freq.: M
  - Source: Central bank — Balance of Payments
- Private capital flows (Colombia)
  - Country: Colombia
  - Freq.: M
  - Source: Central bank — Balanza Cambiaria
- Private capital flows (Korea)
  - Country: Korea
  - Freq.: M
  - Source: Central bank — Balance of Payments
- Nominal GDP, real GDP
  - Country: All
  - Freq.: Q
  - Source: IMF IFS
  - Description/Notes: Seasonality is adjusted by the authors. Real GDP is obtained by deflating the nominal GDP by the consumer price index. We extrapolate the growth rate of the industrial production index into the quarterly GDP series to obtain the monthly GDP series.
- Nominal/real GDP (Brazil)
  - Country: Brazil
  - Freq.: M
  - Source: Central bank — Monthly Gross Domestic Product
- Nominal/real GDP (Colombia)
  - Country: Colombia
  - Freq.: M
  - Source: Central bank — Manufacturing industry real production index
- Nominal/real GDP (Korea)
  - Country: Korea
  - Freq.: M
  - Source: IMF IFS — Industrial production index
- Exchange rates
  - Country: All
  - Freq.: Q, M
  - Source: IMF IFS
  - Description/Notes: Period average
- Interest rates
  - Country: All
  - Freq.: Q, M
  - Source: IMF IFS
  - Description/Notes: Money market rate; Period average
- Forward exchange rates
  - Country: All
  - Freq.: Q, M
  - Source: Bloomberg
  - Description/Notes: Period average
- EMBIG Sovereign Spread (Brazil)
  - Country: Brazil
  - Freq.: Q, M
  - Source: Bloomberg
  - Description/Notes: JPMorgan EMBIG sovereign spread: Brazil; Period average
- EMBIG Sovereign Spread (Colombia)
  - Country: Colombia
  - Freq.: Q, M
  - Source: Bloomberg
  - Description/Notes: JPMorgan EMBIG sovereign spread: Colombia
- ICRG
  - Country: All
  - Freq.: Q, M
  - Source: PRS group
  - Description/Notes: Composite risk
- VIX
  - Freq.: Q, M
  - Source: Bloomberg
  - Description/Notes: Period average

### Notes on sample periods and databases
- Quarterly data start in 2000:Q1 and end with 2008:Q2.
- Monthly data start in January 2000 and end with August 2008.
- Due to limited data availability, Colombia’s monthly data start in January 2004.
- BOPS refers to Balance of Payment Statistics database, and IFS refers to International Financial Statistics database.

*Appendix II. Summary of Stationarity Test (see next section for detailed table entries).*

---

### Appendix II. Summary of Stationarity Test

- Test methodology and sample:
  - An augmented Dickey-Fuller test is performed for each model.
  - ***,**, and * indicate the null hypothesis of a unit root is rejected at the 1%, 5%, and 10% significance level, respectively.
  - The lag for each model is chosen according to the Schwarz information criterion, with the maximum lag 4 for a quarterly series and 12 for a monthly series.
  - The sample periods are January 2000 to August 2008 for Brazil and Korea, January 2004 to August 2008 for Colombia, and 2000:Q1 to 2008:Q2 for Thailand.
- Robustness note:
  - Stationarity can be confirmed at least at the 10% significance level if the sample period is extended to cover 1999:Q1–2008:Q2 or 1999:M1–2008:M12. Because our evidence of stationarity is weak, our analysis may underestimate the actual effects on capital flows that are stationary.
- n.a. indicates the absence of the corresponding series in the data set.
- Frequency by country (from table):
  - Brazil: Monthly
  - Colombia: Monthly
  - Thailand: Quarterly
  - Korea: Monthly

- Selected indicators and transformations (as presented):
  - Net total flows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Net short-term flows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Net long-term flows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Total inflows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Total short-term inflows %GDP: Brazil ***, Colombia ***, Thailand 2/, Korea ***
  - Total long-term inflows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Total outflows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Total short-term outflows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Total long-term outflows %GDP: Brazil ***, Colombia ***, Thailand ***, Korea *
  - URR/Tax index: Brazil Level 2/, Colombia 2/, Thailand 2/, Korea n.a.
  - Inflow control index: 1st difference — Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Outflow control index: 1st difference — Brazil ***, Colombia ***, Thailand ***, Korea ***
  - Interest rate differential: Difference to benchmark — Brazil * , Colombia 2/
  - Spot exchange rate: Log — (entries shown)
  - Real exchange rate: Log — (entries shown)
  - Forward premium: Level — Brazil ***, Colombia ***, Thailand 2/, Korea 2/
  - Domestic business cycle: HP filtered — Brazil ***, Colombia 2/, Thailand 2/, Korea ***
  - Foreign business cycle: HP filtered — Brazil **, Colombia 2/, Thailand 2/, Korea **
  - ICRG index: 1st difference — Brazil ***, Colombia ***, Thailand ***, Korea ***
  - EMBIG sovereign spread: Level — Brazil * , Colombia 2/, Thailand n.a., Korea n.a.
  - VIX: Level — Brazil 2/, Colombia 2/, Thailand 2/, Korea 2/
  - Current account balance %GDP: Brazil * , Colombia **, Thailand 2/, Korea ***

---

### Appendix III. Selected Capital Account Management Measures

### Brazil (2000:M1–2008:M8) — Concerns: Currency appreciation; Credit boom
- Tax:
  - On March 17, 2008, the IOF tax was raised to 1.5 percent on the entry of foreign funds in the settlement of investments in the financial and capital markets and extended in May to similar transactions made by means of simultaneous operations.
  - Exemptions were applied to funds related to equities, equities derivatives, public offerings, and subscription of shares.
  - The 1.5 percent tax was eliminated in October 2008.
- Outflow liberalization:
  - The limits on employee stock option programs and on FDI by nonfinancial private enterprises and the approval requirement on certain personal capital transactions were lifted in March 2005.
  - The controls on individuals’ and corporations’ transfers abroad were abolished in September 2006.

### Colombia (2000:Q1–2008:Q2) — Concerns: Currency appreciation; Credit boom
- URR:
  - Foreign portfolio investments, advance payments of more than four months, financial credits, guarantees, sureties, and financial backup facilities to residents were made subject to a six-month 40 percent URR on May 6, 2007.
  - Foreign trade financing was made subject to a 12-month deposit of 11 percent in pesos or a deposit of 20 percent in U.S. dollars.
  - Penalties for early withdrawal of investments subject to the URR were reduced, and portfolio investments in the primary issuance of equities or in institutional funds were made exempt from the URR in December 2007.
  - The penalties were later increased in June 2008.
  - The URR on portfolio inflows was raised from 40 percent to 50 percent in May 2008.
  - The URR was eliminated October 9, 2008.
- Inflow controls:
  - The deposit requirement on external financing was lifted in May 2000.
  - Nonresidents’ purchase of fixed-income securities was limited to 20 percent of the issue in June; the issuance of securities index derivatives was permitted in 2002.
  - Controls on the use of balances deposited in nonresident foreign currency accounts were lifted in 2003.
  - A one-year minimum holding period was introduced on nonresidents’ portfolio investments from December 2004 through June 2006.
  - A minimum stay of two years was imposed on FDI in May 2008.
  - Limits on banks’ leverage were introduced in 2001.
  - Banks’ gross exposure in the foreign exchange derivative market was limited to 500 percent of capital in May 2007 and increased to 550 percent in May 2008.

### Korea (2000:M1–2008:M8) — Concerns: Currency appreciation; Unhedged foreign exchange lending
- Outflow liberalization and other measures:
  - Limits on deposits abroad were eliminated.
  - The limit on lending to nonresidents was increased and residents’ personal capital transfers were liberalized in 2001.
  - The ceiling on commercial credits was increased in 2002.
  - The limit on individuals’ FDI was raised to US$3 million and on certain real estate purchases to US$500,000 in 2005.
  - Following a further increase, they were eliminated in March 2006.
  - The rules for the repatriation of proceeds from capital transactions were further eased, and all approval requirements for capital transactions were changed to notification requirements in January 2006.
  - The threshold for prior notification of won-denominated loans to nonresidents was raised to W 10 billion in 2006 and to W 30 billion in 2007.
  - Real estate purchases and establishment of bank branches abroad were further liberalized during 2007–08.

### Thailand (2000:Q1–2008:Q2) — Concerns: Currency appreciation
- URR:
  - A one-year URR of 30 percent was put in place for capital inflows, except for FDI and amounts not exceeding US$20,000, on December 19, 2006.
  - Early repatriation was subject to a refund of only two-thirds of the URR.
  - Equity investments traded on the stock exchange were exempted December 22, 2006.
  - There were additional exemptions in early 2007.
  - Certain investment in property funds and long-term foreign borrowing not exceeding US$1 million were made exempt from the URR in December 2007.
  - The URR was eliminated March 3, 2008.
- Inflow controls:
  - Short-term baht borrowing from nonresidents was limited to B 50 million, and a limit of B 300 million was introduced on nonresidents’ baht accounts in 2003.
  - Nonresidents’ accounts carried no interest except for fixed-income accounts with maturities of at least six months.
  - Banks were not allowed to issue or sell bills of exchange in baht of any maturity to nonresidents as of November 15, 2006.
  - Sell-and-buy-back transactions of debt securities were prohibited and a 3-month holding period on investments in government debt securities was introduced December 4, 2006.
  - A B 50 million limit was placed on banks’ borrowing of baht with maturities of less than six months from nonresidents.
  - The limit on banks’ baht borrowing and baht transactions comparable to borrowing from nonresidents without underlying trade or investment in Thailand was decreased to B 10 million on March 3, 2008.
- Outflow liberalization:
  - Investments in employee stock option plans and real estate up to a limit and lending to affiliated companies was allowed in 2002, and an aggregate limit was established on foreign investments of institutional investors in 2003.
  - Foreign companies were allowed to issue baht-denominated bonds subject to approval by the Ministry of Finance in 2006.
  - Significant outflow liberalization started in 2007 with gradual increases in the maximum Thai persons could invest in foreign affiliates: US$50 million in January 2007 and US$100 million in February 2008.
  - The ceiling on institutional investors’ foreign portfolio investments was increased to US$50 million in January 2007.
  - In July 2007, the maximum for real estate purchases and other personal remittances abroad was increased to US$1 million and listed companies were allowed to make outward FDI up to US$100 million.
  - The limits on lending abroad were increased to US$100 million and its scope expanded in February 2008; the maximum on real estate purchases was increased to US$5 million.
  - In March 2008, banks were allowed to lend baht to or engage in comparable transactions i.e. swap with nonresidents up to B 300 million, and portfolio investments by resident individuals were allowed through private funds and securities companies.

*Source: Appendix I, II, and III (series definitions, stationarity test summary, and selected capital account management measures) from the provided IMF content.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11281.pdf_