Regulating Capital Flows at Both Ends: Does it Work?

By Atish R. Ghosh, Mahvash S Qureshi, Naotaka Sugawara

October 17, 2014

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Atish R. Ghosh, Mahvash S Qureshi, and Naotaka Sugawara. Regulating Capital Flows at Both Ends: Does it Work?, (USA: International Monetary Fund, 2014) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines whether cross-border capital flows can be regulated by imposing capital account restrictions (CARs) in both source and recipient countries, as was originally advocated by John Maynard Keynes and Harry Dexter White. To this end, we use data on bilateral cross-border bank flows from 31 source to 76 recipient (advanced and emerging market) countries over 1995–2012, and combine this information with a new and comprehensive dataset on various outflow and inflow related capital controls and prudential measures in these countries. Our findings suggest that CARs at either end can significantly influence the volume of cross-border bank flows, with restrictions at both ends associated with a larger reduction in flows. We also find evidence of cross-border spillovers whereby inflow restrictions imposed by countries are associated with larger flows to other countries. These findings suggest a useful scope for policy coordination between source and recipient countries, as well as among recipient countries, to better manage potentially disruptive flows.

Subject: Balance of payments, Banking, Capital controls, Capital flows, Credit controls, Cross-border banking, Financial services, Foreign exchange, Money

Keywords: Asia and Pacific, Bank asset, Bank flow, Capital control, Capital controls, Capital flows, Credit controls, Cross-boder bank flows, Cross-border banking, Europe, FX assets, Global, Outflow control, Prudential measure, Prudential measures, Real interest rate, Recipient country, Source country, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/188
Stock No:

WPIEA2014188
ISBN:

9781498358743
ISSN:

1018-5941

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