The Effectiveness of Capital Controls and Prudential Policies in Managing Large Inflows

IMF staff have recently sought to clarify when capital controls could be a part of the toolkit to manage large capital inflows. In doing so, considerable emphasis has been laid on the need to ensure that controls in fact achieve their intended objectives. The paper reviews the theoretical rationale and empirical evidence for the effectiveness of controls and related measures, with an emphasis on experiences in the past decade. New research by staff on these issues is summarized. The results confirm earlier work that capital controls and similar measures have a mixed track record.