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Crises, Capital Controls, and Financial Integration

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Abstract

This paper analyzes the effects of capital controls and crises on financial integration, using stocks from emerging economies that trade in both domestic and international markets. The cross market premium provides a valuable measure of how capital controls and crises affect international financial integration. The paper shows that capital controls affect cross market premium in a sustainable way. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens in case of capital outflows. Crises affect financial integration by generating more volatility in the premium and putting more downward pressure on domestic prices. [ADBI WP no.121]

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  • Eduardo Yeyati Levy, 2009. "Crises, Capital Controls, and Financial Integration," Working Papers id:2099, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2099
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    Cited by:

    1. Levy Yeyati, Eduardo & Williams, Tomas, 2012. "Emerging economies in the 2000s: Real decoupling and financial recoupling," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2102-2126.
    2. T.V.S. Ramamohan Rao, 2010. "Financial crisis, efficient bailouts, and regulatory policy," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(2), pages 167-188.
    3. Augusto de la Torre & Eduardo Levy Yeyati & Samuel Pienknagura, "undated". "Latin America’s Deceleration and the Exchange Rate Buffer : LAC Semiannual Report, October 2013," World Bank Publications - Reports 16107, The World Bank Group.
    4. Montecino, Juan Antonio, 2018. "Capital controls and the real exchange rate: Do controls promote disequilibria?," Journal of International Economics, Elsevier, vol. 114(C), pages 80-95.
    5. Guzman, Martin & Ocampo, Jose Antonio & Stiglitz, Joseph E., 2018. "Real exchange rate policies for economic development," World Development, Elsevier, vol. 110(C), pages 51-62.

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    More about this item

    Keywords

    crises; capital controls; financial integration; cross market premium; cross country capital movement; capital controls on inflows; capital controls on outflows; stock market crises; capital market integration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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