Capital Controls, Sudden Stops, and Current Account Reversals

Sebastian Edwards

in Capital Controls and Capital Flows in Emerging Economies

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226184975
Published online February 2013 | e-ISBN: 9780226184999 | DOI:
Capital Controls, Sudden Stops, and Current Account Reversals

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This chapter uses a broad multicountry data set to examine the link between restrictions on capital mobility and currency crises. A country's degree of trade openness is an important determinant of the growth costs of current account reversals. It is noted that higher capital mobility has not been linked with a higher occurrence of banking crises; banking crises have occurred at the same rate in countries with High, Intermediate, and Low capital mobility. There is no clear evidence confirming the view that Low capital mobility countries have a significantly lower incidence of sudden stops or current account reversals. Once a reversal has taken place, countries with a higher degree of capital mobility will experience a deeper drop in growth. The results cast some doubts on the assertion that increased capital mobility has caused heightened macroeconomic vulnerabilities.

Keywords: capital mobility; currency crises; current account reversals; banking crises; sudden stops; trade openness

Chapter.  19442 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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