DP1061 Is There a Safe Passage to EMU? Evidence on Capital Controls and a Proposal

Author(s): Barry Eichengreen, Andrew K Rose, Charles Wyplosz
Publication Date: November 1994
Keyword(s): EMS, Exchange Rate Crisis, Exchange Rates, Speculative Attacks
JEL(s): F31, F32
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1061

This paper provides evidence on the effects of capital controls. We show that controls have been associated with significant differences in macroeconomic behaviour, especially in monetary policy. While they have not prevented speculative attacks, they have provided the breathing space needed to organize orderly realignments. We also provide evidence on the channels through which speculative attacks operate, showing that bank lending to non-residents is a key transmission mechanism. We conclude with a discussion of measures that mimic some of the effects of controls as a way of easing the transition to European Monetary Union. Non-interest-bearing deposit requirements on lending to non-residents are proposed as a third-best route to monetary union.