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Capital Controls in Times of Crisis – Do They Work?
This paper provides an analysis of the use and effects of capital controls in 27 AEs and EMDEs which experienced at least one financial crisis between 1995 and 2017. Countries often turn to using capital controls in crisis: some ease inflow controls while others tighten controls on outflows. A key finding is that countries with pervasive controls before the start of the crisis are shielded compared to countries with more open capital accounts, which see a significant decline in capital flows during crises. In contrast, the effectiveness of capital controls introduced during crises appears to be weak and difficult to identify. There is also some evidence that the introduction of outflow controls during crises is negatively associated with sovereign debt ratings, but that investors may actually forgive with time.
A Primer on Bitcoin Cross-Border Flows: Measurement and Drivers
The rapid growth of crypto assets raises important questions about their cross-border usage. To gain a better understanding of cross-border Bitcoin flows, we use raw data covering both on-chain (on the Bitcoin blockchain) and off-chain (outside the Bitcoin blockchain) transactions globally. We provide a detailed description of available methodologies and datasets, and discuss the crucial assumptions behind the quantification of cross-border flows. We then present novel stylized facts about Bitcoin cross-border flows and study their global and domestic drivers. Bitcoin cross-border flows respond differently than capital flows to traditional drivers of capital flows, and differences appear between on-chain and off-chain Bitcoin cross-border flows. Off-chain cross-border flows seem correlated with incentives to avoid capital flow restrictions.
Predicting Financial Crises: The Role of Asset Prices
We explore the early warning properties of a composite indicator which summarizes signals from a range of asset price growth and asset price volatility indicators to capture mispricing of risk in asset markets. Using a quarterly panel of 108 advanced and emerging economies over 1995-2017, we show that the combination of rapid asset price growth and low asset price volatility is a good predictor of future financial crises. Elevated levels of our indicator significantly increase the probability of entering a crisis within the next three years relative to normal times when the indicator is not elevated. The indicator outperforms credit-based early warning metrics, a result robust to prediction horizons, methodological choices, and income groups. Our results are consistent with the idea that measures based on asset prices can offer critical information about systemic risk levels to policymakers.
A Multi-Currency Exchange and Contracting Platform
Cross-border payments can be slow, expensive, and risky. They are intermediated by counterparties in different jurisdictions which rely on costly trusted relationships to offset the lack of a common settlement asset as well as common rules and governance. In this paper, we present a vision for a multilateral platform that could improve cross-border payments, as well as related foreign exchange transactions, risk sharing, and more generally, financial contracting. The approach is to leverage technological innovations for public policy objectives. A common ledger, smart contracts, and encryption offer significant gains to market efficiency, completeness, and access, as well as to transparency, transaction and compliance costs, and safety. This paper is a first step aiming to stimulate further work in this space.
Foreign Exchange Intervention in Inflation Targeters in Latin America
Foreign exchange intervention is widely used as a policy tool, particularly in emerging markets, but many facets of this tool remain limited, especially in the context of flexible exchange rate regimes. The Latin American experience can be informative because some of its largest countries adopted floating exchange rate regimes and inflation targeting while continuing to intervene in foreign exchange markets. This edited volume reviews detailed accounts from several Latin American countries’ central banks, and it provides insight into how and with what aim many interventions were decided and implemented. This book documents the effectiveness of intervention and pays special attention to the...
