Abstract

RINCON-CASTRO, Hernán; RODRIGUEZ-NINO, Norberto  and  TORO-CORDOBA, Jorge Hernán. Are Capital Controls and Central Bank Intervention Effective?. Inv. Econ [online]. 2020, vol.79, n.313, pp.31-50.  Epub Jan 22, 2021. ISSN 0185-1667.  https://doi.org/10.22201/fe.01851667p.2020.313.76064.

Intervention in the foreign exchange market and capital controls are two controversial policy options that many countries have adopted in order to influence the exchange rate and moderate capital flows. The objective of this paper is to examine their effectiveness for a representative Emerging Market economy. The main findings indicate that neither central bank intervention nor capital controls used separately were successful for depreciating the exchange rate but have the side effect of augmenting its volatility. Nonetheless, during a period when both policies were used simultaneously, they were effective to impact the exchange rate, without increasing its volatility.

Keywords : Capital controls (Tobin tax); foreign exchange intervention; exchange rate return; effectiveness; GARCH.

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