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Christian Saborowski, Sarah Sanya, Hans Weisfeld, and Juan Yepez

. Impulse Responses to an Unexpected Increase in the Outflow Controls Index 3a. Impulse Responses by Macroeconomic Fundamentals 3b. Impulse Responses by Macroeconomic Fundamentals: Including Flows in Net Assets and Net Liabilities as well as Gross Inflows and Gross Outflows Instead of Net Inflows 4a. Impulse Responses by Government Effectiveness 4b. Impulse Responses by Government Effectiveness: Including Flows in Net Assets and Net Liabilities as well as Gross Inflows and Gross Outflows Instead of Net Inflows 5a. Impulse Responses by Intensity of Capital

Christian Saborowski, Sarah Sanya, Hans Weisfeld, and Juan Yepez

of structural country characteristics, we find that restrictions are effective if important preconditions are in place: in countries with good macroeconomic fundamentals, a tightening of restrictions leads to a sizable reduction in net capital outflows. This result is robust to a variety of specification changes. Similarly, a tightening of restrictions is effective in countries with strong institutions, although our findings are slightly less clear cut and robust in this case. Finally, restrictions are effective if the outflow control index is already fairly high

Christian Saborowski, Sarah Sanya, Hans Weisfeld, and Juan Yepez
This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net capital outflows. We find that such tightening is effective if it is supported by strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive. When none of these three conditions is fulfilled, a tightening of restrictions fails to reduce net outflows as it provokes a sizeable decline in gross inflows, mainly driven by foreign investors.
Chikako Baba and Annamaria Kokenyne
This paper estimates the effectiveness of capital controls in response to inflow surges in Brazil, Colombia, Korea, and Thailand in the 2000s. Controls are generally associated with a decrease in inflows and a lengthening of maturities, but the relationship is not statistically significant in all cases, and the effects are temporary. Controls are more successful in providing room for monetary policy than dampening currency appreciation pressures. We argue that the macroeconomic impact of capital controls depends on the extensiveness of the policy, the level of capital market development, the support provided by other policies, and the persistence of capital flows.
Chikako Baba and Annamaria Kokenyne

maturity of flows, maintaining a higher interest rate differential, and easing currency appreciation pressure, in addition to stemming the volume of capital inflows ( Magud and Reinhart, 2007 ). The framework allows us to obtain the dynamic response of macroeconomic variables to controls over time. We treat the following as potential endogenous variables: 27 price-based capital control index (defined by the coverage index multiplied by the effective tax rates); other inflow control index; other outflow control index; interest rate differential (difference in

Mr. Atish R. Ghosh, Miss Mahvash S Qureshi, and Naotaka Sugawara

proportion of countries in the sample with the specific measure in place. Controls indices reflect the average of the overall (outflow and inflow) restrictiveness indices. The jump in the outflow controls index for advanced countries in 2003 in Figure 3[b] is mainly because of measures introduced by some EU countries on the purchase of securities abroad by insurance companies and pension funds, as reported by the OECD and AREAER. Both FX-related prudential measures and capital inflow controls are, however, much less common in advanced countries—though there seems to

International Monetary Fund

footnote 8). In percent of GDP. IFS Outflow control index Index of financial openness (range: 0-1, from Fund staff’s narrow de   least to most regulated). jure index Consumer price ndex   IFS Nominal exchange rate End-of-period. LCU per U.S. dollar. IFS Industrial production Index Seasonally adjusted. IFS interest rate Nominal. Three month. Haver GDP growth In 2005 U.S. dollars. Percent change. WEO Inflation End-of-period. Percent change. WEO Fiscal balance Percent of GDP. WEO

International Monetary Fund
Liberalization of capital flows can benefit both source and recipient countries by improving resource allocation, reducing financing costs, increasing competition and accelerating the development of domestic financial systems. The empirical evidence, however, is mixed on the benefits, and it suggests that countries benefit most when they meet certain thresholds related to institutional and financial development. The principal cost of capital flow liberalization stems from the economic instability brought on by volatile capital flows. In extreme cases, sudden stops or reversals in capital inflows can trigger financial crises followed by prolonged periods of weak growth.
Mr. Atish R. Ghosh, Miss Mahvash S Qureshi, and Naotaka Sugawara
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.
Mr. Tamim Bayoumi and Christian Saborowski

Schindler outflow control index ranging from 0 (open) to 1 (closed) Schindler (2009) , extended to 2010 Quinn Quinn index, recoded to be ranging from 0 (open) to 1 (closed) Updated data based on Quinn (1997) and Quinn and Toyoda (2008) Chinn-Ito Chinn-Ito index, recoded to be ranging from 0 (open) to 1 (closed) Chinn and Ito (2008) Diversion Terms For any given country i, each diversion measure defined below is subsequently multiplied by a constant which ensures that the sum of all diversion terms across countries is