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Liberalised Capital Accounts and Volatility of Capital Flows and Foreign Exchange Rates

Bogdan Bogdanov, European Commission

Liberalised Capital Accounts and Volatility of Capital Flows and Foreign Exchange Ratespdf(532 kB) Choose translations of the previous link 

Summary for non-specialistspdf(29 kB) Choose translations of the previous link 

Whether free movement of international capital induces greater risk of foreign exchange rate and balance-of-payments volatility, or not, is an important question in international finance and economic policy making. The paper employs propensity score matching methodologies to estimate the impact of maintaining open capital accounts on the volatility of international capital flows and foreign exchange rates using data for 69 countries, in the sample period 1980-2011. The findings of the study suggest that maintaining an open capital account could contribute to lower foreign exchange rate volatility. It also finds that capital flow management measures may not have an effect on the volatility of short- and long-term capital flows.

(European Economy. Economic Papers. 521. July 2014. Brussels. PDF. 36pp. Tab. Graph. Ann. Bibliogr. Free.)

KC-AI-14-521-EN-N (online)KC-AI-14-521-EN-C (print)
ISBN 978-92-79-35170-9 (online)ISBN 978-92-79-36115-9 (print)
doi:10.2765/7023 (online)doi:10.2765/77799 (print)

JEL classification: C21, F30

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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