The Information Content of Capital Controls

Capital controls, policy measures used by governments to regulate cross-country financial flows, have become standard policy options in many emerging market economies. This paper will focus on what capital controls reveal about the state of the eco...

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Main Author:	Nie, Owen
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	CAPITAL CONTROLS MACROPRUDENTIAL POLICY NOWCASTING FINANCIAL CRISIS CAPITAL FLOWS FINANCIAL FLOWS EMERGING MARKET ECONOMIES FINANCIAL REGULATION
Online Access:	http://documents.worldbank.org/curated/en/864531596112858742/The-Information-Content-of-Capital-Controls http://hdl.handle.net/10986/34261

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recordtype	oai_dc
spelling	okr-10986-342612022-09-20T00:12:48Z The Information Content of Capital Controls Nie, Owen CAPITAL CONTROLS MACROPRUDENTIAL POLICY NOWCASTING FINANCIAL CRISIS CAPITAL FLOWS FINANCIAL FLOWS EMERGING MARKET ECONOMIES FINANCIAL REGULATION Capital controls, policy measures used by governments to regulate cross-country financial flows, have become standard policy options in many emerging market economies. This paper will focus on what capital controls reveal about the state of the economy and the implications of such revelation for policy efficacy. Using a small open economy model with a collateral constraint and over-borrowing relative to the social optimum, I incorporate a representative agent's Bayesian updating of information in response to change in policy and show that the efficacy of capital controls to contain financial crises and improve welfare could be undermined if the agent rationally learns from policy. Empirically, this paper finds that capital controls convey important information market participants use to improve their understanding of fundamentals. This paper highlights the need for policymakers to take into account the un-intended consequences of information revelation in the design of capital ow management policies. 2020-07-30T16:44:31Z 2020-07-30T16:44:31Z 2020-07 Working Paper http://documents.worldbank.org/curated/en/864531596112858742/The-Information-Content-of-Capital-Controls http://hdl.handle.net/10986/34261 English Policy Research Working Paper;9343 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	CAPITAL CONTROLS MACROPRUDENTIAL POLICY NOWCASTING FINANCIAL CRISIS CAPITAL FLOWS FINANCIAL FLOWS EMERGING MARKET ECONOMIES FINANCIAL REGULATION
spellingShingle	CAPITAL CONTROLS MACROPRUDENTIAL POLICY NOWCASTING FINANCIAL CRISIS CAPITAL FLOWS FINANCIAL FLOWS EMERGING MARKET ECONOMIES FINANCIAL REGULATION Nie, Owen The Information Content of Capital Controls
relation	Policy Research Working Paper;9343
description	Capital controls, policy measures used by governments to regulate cross-country financial flows, have become standard policy options in many emerging market economies. This paper will focus on what capital controls reveal about the state of the economy and the implications of such revelation for policy efficacy. Using a small open economy model with a collateral constraint and over-borrowing relative to the social optimum, I incorporate a representative agent's Bayesian updating of information in response to change in policy and show that the efficacy of capital controls to contain financial crises and improve welfare could be undermined if the agent rationally learns from policy. Empirically, this paper finds that capital controls convey important information market participants use to improve their understanding of fundamentals. This paper highlights the need for policymakers to take into account the un-intended consequences of information revelation in the design of capital ow management policies.
format	Working Paper
author	Nie, Owen
author_facet	Nie, Owen
author_sort	Nie, Owen
title	The Information Content of Capital Controls
title_short	The Information Content of Capital Controls
title_full	The Information Content of Capital Controls
title_fullStr	The Information Content of Capital Controls
title_full_unstemmed	The Information Content of Capital Controls
title_sort	information content of capital controls
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/864531596112858742/The-Information-Content-of-Capital-Controls http://hdl.handle.net/10986/34261
_version_	1764480525194493952

The Information Content of Capital Controls

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