## Do Capital Controls Limit Inflow Surges?

_IMF Working Papers, March 10, 2023_

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## Bibliographic details
- Authors: Apoorv Bhargava, Romain Bouis, Annamaria Kokenyne, Manuel Perez-Archila, Umang Rawat, Ratna Sahay
- Published: March 10, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400235092.001

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### Summary
- With rising financial integration, the magnitude and swings in capital flows have increased in the past two decades, intensifying the policy debate on how best to deal with these flows.
- This paper assesses the use and effectiveness of capital controls in limiting inflow surges using a novel dataset on capital control changes across 40 advanced and emerging market and developing economies over 1995-2018.
- Main headline finding: the tightening of capital controls reduces the probability of future surges both at the aggregate and the asset flow levels.

### Methodology and Data
- Dataset: capital control changes across 40 advanced and emerging market and developing economies over 1995-2018.
- Empirical approach: evaluation of the impact of tightening capital controls on the probability of subsequent inflow surges, including analysis by asset flow levels and by matching controls to targeted asset classes.
- Robustness checks: results tested across various definitions of surges.

### Key Findings
- Tightening of capital controls reduces the probability of future inflow surges at the aggregate level.
- Tightening of capital controls reduces the probability of future inflow surges at the asset flow level.
- Results are robust to various definitions of surges.
- Effects are stronger when controls are matched to the asset class they target.
- Significant multilateral spillovers from capital control actions were found, indicating cross-border effects.

### Policy Implications and Recommendations
- Capital controls can be effective tools to limit inflow surges when appropriately targeted to the relevant asset classes.
- Given significant multilateral spillovers, coordination and international cooperation are important in the use of capital controls.
- Policymakers should consider the match between the design of controls and the specific asset flows they aim to influence.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/03/10/do-capital-controls-limit-inflow-surges-530641_