Are capital controls countercyclical?

A growing theoretical literature advocates the use of countercyclical capital control policy, that is, the tightening of restrictions on net capital inflows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in 78 countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Booms and busts in aggregate activity are associated with virtually no movements in capital controls. These results are robust to controlling for the level of development, external indebtedness, and the exchange-rate regime. They also obtain around the great contraction of 2007.