What's In a Name? That Which We Call Capital Controls

Abstract

SUMMARYThis paper investigates why controls on capital inflows have a bad name by tracing how capital controls have been used and perceived since the laissez-faire era of the classical gold standard. While advanced economies often employed capital controls to tame inflows during the last century, we conjecture that several factors undermined their subsequent use – most notably, a ‘guilt by association’ with controls on capital outflows, which have typically been employed by autocratic regimes or those with failed macroeconomic policies. We formalize the idea of a possible guilt by association between inflow controls and outflow controls in a signalling model and provide some empirics consistent with it.