Are Capital Controls Effective in the 21st Century? The Recent Experience of Colombia

27 Pages Posted: 11 Mar 2009

See all articles by Benedict Clements

Benedict Clements

International Monetary Fund (IMF) - African Department

Herman Kamil

University of Michigan at Ann Arbor - Department of Economics

Date Written: February 2009

Abstract

This paper assesses the effects of capital controls imposed in Colombia in 2007 on capital flows and exchange rate dynamics. The results suggest that the controls were successful in reducing external borrowing, but had no statistically significant impact on the volume of non-FDI flows as a whole. We find no evidence that restrictions to capital mobility moderated the appreciation of Colombia's currency, or increased the degree of independence of monetary policy. We also find that controls have significantly increased the volatility of the exchange rate. Additional research is needed to assess the effects of capital controls on financial stability.

Keywords: Capital controls, Colombia, Capital flows, Exchange rate appreciation, Exchange rate developments, Emerging markets, Economic models

Suggested Citation

Clements, Benedict and Kamil, Herman, Are Capital Controls Effective in the 21st Century? The Recent Experience of Colombia (February 2009). IMF Working Paper No. 09/30, Available at SSRN: https://ssrn.com/abstract=1356459

Benedict Clements

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Herman Kamil (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

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