Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia

January 1, 2004

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Natalia T. Tamirisa Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia, (USA: International Monetary Fund, 2004) accessed November 21, 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 how the macroeconomic effects of capital controls vary depending on which type of international financial transaction they cover. Drawing on Malaysia's experiences in regulating the capital account during the 1990s, it finds, in an error-correction model, that capital controls generally have statistically insignificant effects on the exchange rate. Controls on portfolio outflows and on bank and foreign exchange operations facilitate reductions in the domestic interest rate, while controls on portfolio inflows have the opposite effect, in line with the theoretical priors. Controls on international transactions in the domestic currency and stock market operations have statistically insignificant effects on the interest rate differential.

Subject: Balance of payments, Capital account, Capital adequacy requirements, Capital controls, Financial regulation and supervision, Financial services, Foreign exchange, Real exchange rates, Real interest rates

Keywords: Appendix Table, Asian crisis, Capital, Capital account, Capital account regulation, Capital adequacy requirements, Capital control, Capital control index, Capital controls, Control, Controls, Credit vis-à-vis nonresident, Differential change, Error-correction model, Exchange, Flows, Global, Intensity of capital control, Interest rate, Interest rate differential, Interest rate differential change, Interest rate reduction, Investment, Malaysia, Malaysia's performance, Portfolio, Portfolio capital, Portfolio inflow, Real exchange rates, Real interest rates, Role of capital control, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/003
Stock No:

WPIEA0032004
ISBN:

9781451841930
ISSN:

1018-5941

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