Capital Controls in Times of Crisis – Do They Work?

IMF Working Papers, March 17, 2023

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Authors: Apoorv Bhargava, Romain Bouis, Annamaria Kokenyne, Manuel Perez-Archila, Umang Rawat, Ratna Sahay
Published: March 17, 2023
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400236235.001

Paper analyzes 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 change capital control stance during crises: some ease inflow controls while others tighten controls on outflows.
Main contrast: countries with pervasive controls prior to crises versus countries with more open capital accounts.

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.
The effectiveness of capital controls introduced during crises appears to be weak and difficult to identify.
There is some evidence that the introduction of outflow controls during crises is negatively associated with sovereign debt ratings, but investors may actually forgive with time.

Subject: Balance of payments, Capital account, Capital controls, Capital flows, Capital outflows, Financial crises
Keywords: Capital account, Capital controls, Capital flows, capital outflows, Caribbean, controls on outflow, financial crises, Global, inflow control, outflow control, outflow controls Introduced, tightening control