Are Price-Based Capital Account Regulations Effective In Developing Countries ?

In this paper we evaluate the effectiveness of policy measures adopted by Chile and Colombia aiming to mitigate the deleterious effects of pro-cyclical capital flows.In the case of Chile, according to our GMM analysis, capital controls succeeded in reducing net short-term capital flows, but did not affect long-term flows.As far as Colombia is concerned, the regulations were capable of affecting total flows and also long-term ones.In addition, our co-integration models indicate that the regulations did not have a direct effect on the real exchange rate in the Chilean case.Nonetheless, the model used for Colombia did detect a direct impact of the capital controls on the real exchange rate.Therefore, our results do not seem to support the idea that those regulations were easily evaded.