To read this content please select one of the options below:

Attenuating international financial shocks: the role of capital controls

Chokri Zehri (Department of Business Administration, College of Sciences and Humanities in Slayel, Prince Sattam Bin Abdulaziz University, Al-Kharj, Saudi Arabia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 3 June 2021

Issue publication date: 21 March 2023




By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.


This study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.


This study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.


This study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.



Zehri, C. (2023), "Attenuating international financial shocks: the role of capital controls", International Journal of Emerging Markets, Vol. 18 No. 4, pp. 868-885.



Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

Related articles