Re-Examination of Effectiveness of Capital Controls Under Financial Cycle Conditions
LIANG Si1, WANG Yu-jian2, ZHANG Pin-yi3
1.School of International Business, Shaanxi Normal University, Xi’an 710119, China; 2.Academy for International Business Officials, Ministry of Commerce, Beijing 102209, China; 3.School of Economics and Management, Beijing University of Information Science and Technology, Beijing 100192, China
Abstract：
Capital flows are the macroscopic representation of investors’ cross-border investment behavior. The hypothesis is put forward based on the expectation theory, which is under conditions of volatile financial cycles, the difference of investors’ expected income leads to the different investment decisions in different stages of the financial cycle that ultimately leads to the nonlinear feature of the influence of capital controls on capital flow. This paper uses threshold model with the panel data of 19 countries from 1990 to 2015. It tests the rationality of the hypothesis and the result shows that the effect of capital controls in financial boom and recession periods is not as good as that in financial stability. And compared with developed countries, the effectiveness of capital controls in developing countries is more responsive to the financial cycle. Therefore, in financial boom and recession periods, the government should not only strengthen capital controls but also make use of macro-prudential management measures and make intervention of investors expectation.
LIANG Si, WANG Yu-jian, ZHANG Pin-yi.Re-Examination of Effectiveness of Capital Controls Under Financial Cycle Conditions[J] Economic Survey, 2018,V35(4): 59-64
2018 
