Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia

IMF Working Papers, February 1, 2009

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The paper assesses the effects of capital controls imposed in Colombia in 2007 on capital flows and exchange rate dynamics.
The results suggest that the controls were successful in reducing external borrowing.
The controls had no statistically significant impact on the volume of non-FDI flows as a whole.
There is no evidence that restrictions to capital mobility moderated the appreciation of Colombia's currency.
There is no evidence that the controls increased the degree of independence of monetary policy.
Controls have significantly increased the volatility of the exchange rate.
Additional research is needed to assess the effects of capital controls on financial stability.

The paper implies limits to the effectiveness of capital controls in altering aggregate non-FDI capital flow volumes.
The findings caution that capital controls may not prevent currency appreciation nor enhance monetary policy independence.
The paper highlights a trade-off between reducing external borrowing and increasing exchange rate volatility.
The authors call for additional research specifically focused on the effects of capital controls on financial stability.

Subject: Balance of payments, Capital controls, Capital flows, Capital inflows, Exchange rates, Expenditure, Foreign exchange, Pension spending
Keywords: capital control, Capital Controls, capital flow, Capital flows, Capital Inflows, controls era, exchange rate intervention, Exchange Rate Models, exchange rate volatility, Exchange rates, foreign currency, Global, interest rate differential, market trading, Pension spending, post control period, WP