Capital controls impacts: The challenge of policy coordination

The impacts of capital controls, both domestically and internationally, are still not clearly understood. This study applies a Panel VAR approach to examine these impacts. We use quarterly data from 40 economies over the period between the years 2000 and 2019. Domestically, capital controls allow for more monetary policy autonomy, more exchange rate stability, and, unpredictably, have no impact on international reserves accumulation. Internationally, capital controls lead to negative spillovers between countries introducing them and their neighbouring countries. These effects give rise to the necessity of policy coordination, both domestically and internationally, before deciding to introduce capital controls.