Abstract
Many countries try to smooth their exchange rate movements by means of capital controls or otherwise. By the use of statistical extreme value analysis, we investigate if capital controls succeed in lowering the exchange rate volatility. We dene forex volatility as the risk of extreme depreciations. For a sample of developed and emerging markets we nd that capital controls are not eective in reducing this extreme depreciation risk. On the contrary, extreme depreciation risk is almost twice as high compared to an exchange rate regime without capital controls.
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