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Capital Controls and the International Transmission of U.S. Money Shocks


  • The authors wish to thank Kirran Bari for assistance with the data and Matt Shum, Jonathan Wright, and seminar participants at Johns Hopkins University, the Inter American Development Bank, and the International Finance Division of the Federal Reserve Board for useful comments and suggestions. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views or the policy of the International Monetary Fund, the Board of Governors of the Federal Reserve System, or of other members of their staffs.


We assess whether capital controls effectively insulate countries from U.S. monetary shocks, examining a large range of country experiences in a unified estimation framework. We estimate the effect of identified U.S. monetary shocks on the exchange rate and foreign country interest rates, and test whether countries with less open capital accounts exhibit systematically smaller responses. We find essentially no evidence of this. Other country factors such as the exchange rate regime or degree of dollarization explain more of the cross-country differences in responses. The significant differences in responses we do find are more pronounced at short horizons.