Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia

Author/Editor:

Natalia T. Tamirisa

Publication Date:

January 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines how the macroeconomic effects of capital controls vary depending on which type of international financial transaction they cover. Drawing on Malaysia's experiences in regulating the capital account during the 1990s, it finds, in an error-correction model, that capital controls generally have statistically insignificant effects on the exchange rate. Controls on portfolio outflows and on bank and foreign exchange operations facilitate reductions in the domestic interest rate, while controls on portfolio inflows have the opposite effect, in line with the theoretical priors. Controls on international transactions in the domestic currency and stock market operations have statistically insignificant effects on the interest rate differential.

Series:

Working Paper No. 2004/003

Subject:

Balance of payments Capital account Capital adequacy requirements Capital controls Financial regulation and supervision Financial services Foreign exchange Real exchange rates Real interest rates

English

Publication Date:

January 1, 2004

ISBN/ISSN:

9781451841930/1018-5941

Stock No:

WPIEA0032004

Pages:

24

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