What’s in a Name? That Which We Call Capital Controls

Abstract

This 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 signaling model and provide some empirics consistent with it.