Capital Controls and Recovery from the Financial Crisis of the 1930s

NBER Working Paper No. 20220

Issued in June 2014

NBER Program(s):Development of the American Economy, International Finance and Macroeconomics



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 exchange 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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20220

Published: Kris James Mitchener & Kirsten Wandschneider, 2015. "Capital controls and recovery from the financial crisis of the 1930s," Journal of International Economics, vol 95(2), pages 188-201. citation courtesy of

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