Dynamic treatment effect of capital controls on macroeconomic and financial stability in emerging market economies

We study treatment effect of capital controls on macroeconomic and financial stability in emerging market economies. The results show that capital control measures have dynamic effects where volume of capital inflows depend on its past treatment. We find an effective role of capital inflows controls in reducing currency appreciation where impact builds up over a year. Similarly, the results show that inflow controls on equities and debt instruments increase monetary policy autonomy over 1 and 2 years, respectively. Overall, our results have important implications for macroeconomic policy in emerging market economies.