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Capital Controls in Times of Crisis – Do They Work?

Author

Listed:
  • Apoorv Bhargava
  • Romain Bouis
  • Annamaria Kokenyne
  • Manuel Perez-Archila
  • Umang Rawat
  • Ms. Ratna Sahay

Abstract

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.

Suggested Citation

  • Apoorv Bhargava & Romain Bouis & Annamaria Kokenyne & Manuel Perez-Archila & Umang Rawat & Ms. Ratna Sahay, 2023. "Capital Controls in Times of Crisis – Do They Work?," IMF Working Papers 2023/067, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/067
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    Keywords

    Capital controls; capital outflows; financial crises; inflow control; outflow controls Introduced; outflow control; controls on outflow; tightening control; Capital account; Capital flows; Caribbean; Global;
    All these keywords.

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