IMF Working Papers

Capital Controls in Times of Crisis – Do They Work?

Author/Editor:

Apoorv Bhargava ; Romain Bouis ; Annamaria Kokenyne ; Manuel Perez-Archila ; Umang Rawat ; Ratna Sahay

Publication Date:

March 17, 2023

Electronic Access:

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Summary:

This paper provides an analysis of the use and effects of capital controls in 27 AEs and EMDEs which experienced at least one financial crisis between 1995 and 2017. Countries often turn to using capital controls in crisis: some ease inflow controls while others tighten controls on outflows. A key finding is that countries with pervasive controls before the start of the crisis are shielded compared to countries with more open capital accounts, which see a significant decline in capital flows during crises. In contrast, the effectiveness of capital controls introduced during crises appears to be weak and difficult to identify. There is also some evidence that the introduction of outflow controls during crises is negatively associated with sovereign debt ratings, but that investors may actually forgive with time.

Series:

Working Paper No. 2023/067

Subject:

Balance of payments Capital account Capital controls Capital flows Capital outflows Financial crises

Frequency:

regular