Short and Long-Run Integration : Do Capital Controls Matter?

The authors study whether capital controls affect the link between domestic and foreign stock market prices and interest rates. To examine the characteristics of international market integration and the effects of capital controls in the short and long run, they apply band-pass filter techniques to data from six emerging economics during the 1990s. They find that markets seem to be linked more at longer horizons. Equity prices seem to be more connected internationally than interest rates. They also find little evidence that controls effectively segment domestic markets from foreign markets. And when they do, the effects seem to be short-lived. Moreover, the effects of controls on outflows do not seem to differ from those of controls on inflows. For example, controls on outflows in Venezuela during the 1994 crisis, and unremunerated reserve requirements in Chile and Colombia during a capital-inflow episode, seem to have shielded domestic markets at the most at very high frequencies. The degree of financial sophistication does not seem to affect the authors' conclusion on the insulation provided by capital controls. True, more developed financial markets, such as those in Brazil, are more closely linked to international markets than those in Colombia and Venezuela, which are far more illiquid. But capital controls do not seem to provide an extra cushion against international spillovers even in less developed markets.

Bibliographic Details

Main Authors:	Kaminsky, Graciela, Schmukler, Sergio L.
Language:	English en_US
Published:	World Bank, Washington, DC 2001-08
Subjects:	AMERICAN DEPOSITORY RECEIPTS, ARBITRAGE, ASSET MARKETS, ASYMMETRIC INFORMATION, AUCTIONS, AUTHORIZED BANKS, AUTONOMOUS MONETARY POLICY, AUTONOMY, BALANCE OF PAYMENTS, BANK DEPOSITS, BANKING CRISIS, BOND MARKETS, BONDS, BORROWING, CAPITAL ACCOUNT, CAPITAL ACCOUNT LIBERALIZATION, CAPITAL ADEQUACY, CAPITAL CONTROLS, CAPITAL FLOWS, CAPITAL GAINS, CAPITAL INFLOWS, CAPITAL MARKETS, CAPITAL MOBILITY, CAPITAL MOVEMENTS, CAPITAL OUTFLOWS, CENTRAL BANK, CENTRAL BANKS, COMMERCIAL BANKS, COUNTRY COMPARISONS, CURRENT ACCOUNT, CYCLICAL BEHAVIOR, DEBT, DEPOSIT REQUIREMENTS, DERIVATIVE MARKETS, DESTABILIZING EFFECT, DEVELOPING COUNTRIES, DIVIDENDS, DOMESTIC BANKS, DOMESTIC CURRENCIES, DOMESTIC CURRENCY, DOMESTIC ECONOMY, DOMESTIC FINANCIAL INSTITUTIONS, DOMESTIC FINANCIAL MARKETS, DOMESTIC INTEREST RATES, DOMESTIC INVESTORS, EMERGING ECONOMIES, EMERGING MARKETS, EXCHANGE ARRANGEMENTS, EXCHANGE CONTROLS, EXCHANGE RATE, EXCHANGE RATES, EXCHANGE RESTRICTIONS, EXPECTED RETURNS, EXPORTS, EXTERNAL BORROWING, EXTERNAL DEBT, EXTERNAL SHOCKS, FINANCE COMPANIES, FINANCIAL CONTROLS, FINANCIAL CRISES, FINANCIAL CYCLES, FINANCIAL DEVELOPMENT, FINANCIAL INSTABILITY, FINANCIAL INSTITUTIONS, FINANCIAL INTEGRATION, FINANCIAL LIBERALIZATION, FINANCIAL LOANS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL REPRESSION, FINANCIAL SUPPORT, FINANCIAL SYSTEMS, FINANCIAL TRANSACTIONS, FIXED INCOME, FOREIGN BORROWING, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN CURRENCY BORROWING, FOREIGN DEBT, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN INVESTMENT, FOREIGN INVESTORS, FOREIGN LOAN, FOREIGN LOANS, FOREIGN MARKETS, FOREIGN SPECULATORS, FOREIGN STOCK, FREE CAPITAL MOBILITY, FUTURE RESEARCH, GLOBALIZATION OF CAPITAL MARKETS, GOVERNMENT BONDS, HOT MONEY, INCOME, INDUSTRIAL COUNTRIES, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANKING, INTERNATIONAL BANKING FACILITY, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL CAPITAL MOBILITY, INTERNATIONAL FINANCIAL INTEGRATION, INTERNATIONAL MARKETS, LEGISLATION, LIBERALIZATION EPISODE, LOCAL BANKS, MACROECONOMICS, MATURITIES, MONETARY AUTHORITIES, MONETARY POLICY, MONEY SUPPLY, NET WORTH, POLICY RESEARCH, PORTFOLIO, PRICE INDEXES, PRIVATE SECTOR, PRIVATIZATION, RANDOM WALK, REPATRIATION OF CAPITAL, RESERVE, RESERVE REQUIREMENT, RESERVE REQUIREMENTS, STOCK EXCHANGE, STOCK INDEX, STOCK MARKET, STOCK MARKET CYCLES, STOCK MARKET INDEX, STOCK MARKET INDEXES, STOCK MARKETS, STOCK PRICES, SWAPS, TAXATION, TROUGH,
Online Access:	http://documents.worldbank.org/curated/en/2001/08/1561500/short-long-run-integration-capital-controls-matter https://hdl.handle.net/10986/19570
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