Dilemma and global financial cycle: Evidence from capital account liberalisation episodes

Arbeitspapier

By focusing on the episodes of substantial capital account liberalisation and adopting a new methodology, this paper provides new evidence on the dilemma and global financial cycle theory. I first identify the capital account liberalisation episodes for 95 countries from 1970 to 2016, and then employ an augmented inverse propensity score weighted (AIPW) estimator to calculate the average treatment effect (ATE) of opening capital account on the interest rate comovements with the core country. Results show that opening capital account causes a country to lose its monetary policy independence, and a floating exchange rate regime cannot shield this effect. Moreover, the impact is stronger when liberalising outward and banking flows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 13/2021

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Current Account Adjustment; Short-term Capital Movements ; International Monetary Arrangements and Institutions ; International Policy Coordination and Transmission
• Subject: average treatment effect ; capital control ; global financial cycle ; monetary policy autonomy ; propensity score matching ; trilemma

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Li, Xiang
• Event: Veröffentlichung
• (who): Halle Institute for Economic Research (IWH)
• (where): Halle (Saale)
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/247688
• Last update: 10.03.2025, 11:43 AM CET