Facing volatile capital flows: the role of exchange rate flexibility and foreign assets

We examine the role of the restrictive policy, through capital controls, in reducing the capital flows volatility. The study highlights the effects of these controls to dampen international financial shocks. Using quarterly data of 28 emerging economies over the period between 1999 and 2019, three empirical approaches are applied, dynamic panel data, ARDL, and local projections models. Four indexes of capital controls have contributed to the finding that a tighter level of capital controls reduces the sensitivity of capital flows to monetary and exchange rate shocks. These findings on the benefits of capital controls are particularly asymmetric according to the differences between controls on inflows and outflows, and the differences between floating and pegged exchange rate regimes.

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Capital flows, exchange rate flexibility, and the real exchange rate

Journal of Macroeconomics ◽

10.1016/j.jmacro.2012.08.001 ◽

2012 ◽

Vol 34 (4) ◽

pp. 1034-1043 ◽

Cited By ~ 45

Author(s):

Jean-Louis Combes ◽

Tidiane Kinda ◽

Patrick Plane

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Capital Flows ◽

Exchange Rate Flexibility ◽

The Real

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: (Impact of Exchange Rate Flexibility on Current Account Rebalancing -- With a Focus on International Capital Flows)

SSRN Electronic Journal ◽

10.2139/ssrn.2580634 ◽

2014 ◽

Author(s):

Geun Young Kim

Keyword(s):

Exchange Rate ◽

Current Account ◽

Capital Flows ◽

International Capital Flows ◽

International Capital ◽

Exchange Rate Flexibility

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Welchen Einfluss hat der Wechselkurs auf die internationale Rolle von US-Dollar und Euro?

Perspektiven der Wirtschaftspolitik ◽

10.1111/j.1468-2516.2008.00292.x ◽

2009 ◽

Vol 10 (1) ◽

pp. 21-38

Author(s):

Hermann Remsperger ◽

Adalbert Winkler

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Emerging Market ◽

Exchange Rate Flexibility ◽

Exchange Rate Fluctuations ◽

Inflation Differentials ◽

International Currencies ◽

International Role ◽

The Impact

AbstractThis article analyses the impact of the exchange rate on the role of dollar and euro as international currencies. It is found that exchange rate fluctuations are a major determinant of the international role of currencies only if they reflect sizeable inflation differentials. Accordingly, major changes in the international role of dollar and euro are not to be expected given the continuation of a stability-oriented US monetary policy. However, a move towards more exchange rate flexibility in emerging market economies, reflecting the need for greater monetary policy autonomy, might lead to a relative strengthening of the international role of the euro. 38 C

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