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  • 1 0000000404811396 Monetary Fund

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IMF Working Paper

Finance Department

The Impact of Gray-Listing on Capital Flows: An Analysis Using Machine Learning

Prepared by Mizuho Kida and Simon Paetzold1

Authorized for distribution by Olaf Unteroberdoerster

May 2021

The IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.


The Financial Action Task Force’s gray list publicly identifies countries with strategic deficiencies in their AML/CFT regimes (i.e., in their policies to prevent money laundering and the financing of terrorism). How much gray-listing affects a country’s capital flows is of interest to policy makers, investors, and the Fund. This paper estimates the magnitude of the effect using an inferential machine learning technique. It finds that gray-listing results in a large and statistically significant reduction in capital inflows.

JEL Classification Numbers: F21, F38, G28, K33, K42, L51

Keywords: capital flows, AML/CFT, gray list, machine learning, emerging market economies

Authors’ Email Address:;


  • 1 Introduction

  • 2 Event Analysis

  • 3 Econometric Analysis

    • 3.1 Methodology

    • 3.2 Model

    • 3.3 Data

    • 3.4 Results

  • 4 Robustness

    • 4.1 Event Window

    • 4.2 Small Number of Gray-Listing Observations

  • 5 Concluding Remarks

  • Appendices

  • A FATF Gray-Listing

  • B Estimation Sample: 2000q1–2017q4

  • C Gray-Listing and Net Errors and Omissions

  • D Variables and Data Sources


We thank Steve Dawe, Chady El Khoury, Tidiane Kinda, Thomas Krueger, Maksym Markevych, Tigran Poghosyan, Jonathan Pampolina, Olaf Unteroberdoerster, the FATF secretariat, and participants at a seminar at the IMF for helpful comments.

The Impact of Gray-Listing on Capital Flows: An Analysis Using Machine Learning
Author: Mizuho Kida and Simon Paetzold