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Department ofEconomics


Capital Controls and Recovery from Financial Crises: Lessons from the 1930s

Kris Mitchener and Kirsten Wandschneider

Journal of International Economics 95(2), pp. 188–201, March 2015 CEPR Discussion Paper 10019 and NBER Working Paper 20220.

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We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-in-differences (DD) estimates of industrial production, prices, and exports suggest that capital controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy.

LSB Research, ECON, 2015, Kris Mitchener