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Dynamic treatment effect of capital controls on macroeconomic and financial stability in emerging market economies

Author

Listed:
  • Richa Jain

    (Indian Institute of Technology (IIT))

  • Amlendu Dubey

    (Indian Institute of Technology (IIT))

Abstract

We study treatment effect of capital controls on macroeconomic and financial stability in emerging market economies. The results show that capital control measures have dynamic effects where volume of capital inflows depend on its past treatment. We find an effective role of capital inflows controls in reducing currency appreciation where impact builds up over a year. Similarly, the results show that inflow controls on equities and debt instruments increase monetary policy autonomy over 1 and 2 years, respectively. Overall, our results have important implications for macroeconomic policy in emerging market economies.

Suggested Citation

  • Richa Jain & Amlendu Dubey, 2025. "Dynamic treatment effect of capital controls on macroeconomic and financial stability in emerging market economies," Empirical Economics, Springer, vol. 68(3), pages 963-999, March.
    • Handle: RePEc:spr:empeco:v:68:y:2025:i:3:d:10.1007_s00181-024-02672-2
    DOI: 10.1007/s00181-024-02672-2
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    More about this item

    Keywords

    Capital controls; Financial stability; Macroeconomic stability; Dynamic effects; Difference-in-difference;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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