Capital Controls, Sudden Stops and Current Account Reversals, Issue 11170
In this paper I use a broad multi-country data set to analyze the relationship between restrictions to capital mobility and external crises. The analysis focuses on two manifestations of external crises: (a) sudden stops of capital inflows; and (b) current account reversals. I deal with two important policy-related issues: First, does the extent of capital mobility affect countries' degree of vulnerability to external crises; and second, does the extent of capital mobility determine the depth of external crises -- as measured by the decline in growth -- once the crises occur? Overall, my results cast some doubts on the assertion that increased capital mobility has caused heightened macroeconomic vulnerabilities. I find no systematic evidence suggesting that countries with higher capital mobility tend to have a higher incidence of crises, or tend to face a higher probability of having a crisis, than countries with lower mobility. My results do suggest, however, that once a crisis occurs, countries with higher capital mobility may face a higher cost, in terms of growth decline.
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analysis analyze Arrangements and Exchange Bekaert Bureau of Economic Calvo Cambridge capita growth Capital Account Liberalization capital account restrictions capital controls capital inflows capital mobility index capital restrictions coefficient is expected countries with High country-specific Currency Crises current account deficit current account reversals data set degree of capital dollarization Economic Research Edwards effect estimated coefficient Exchange Restrictions experiencing a current extent of capital external crises external debt Financial Frankel GDP growth GDP per capita High capital mobility High mobility IMF Staff Papers incidence of sudden index of capital Josh Lerner lagged Latin America Low capital mobility Low mobility macroeconomic measure Mobility Banking Mody and Murshid National Bureau NBER Working Paper number of countries P-value Panel probability of experiencing probit Quinn rate of growth Reversals and Sudden Sebastian significant stops and current sudden stops Table 13 terms of trade Total trade openness variable variance-covariance matrix vulnerability World Development Indicators