Comments on “Effectiveness of Capital Controls: Evidence from Thailand”. Asian Development Review, Vol. 29(2), pp. 94-95

Abstract

The paper finds that the different types of capital controls are effective in terms of affecting the volume and composition of flows. Using the real effective exchange rate, however, it finds that capital controls do not relieve the pressure of the domestic currency to appreciate. It also looks at two measures of volatility based on the nominal exchange rate to the dollar and the export-weighted bilateral exchange rate and confirms that capital controls stabilize the exchange rate. The paper likewise examines whether capital controls affect monetary independence. However, I think the duration of maturities of the interest rates used to derive the interest rate differentials (i.e., between the 14-day repurchase rate and the US 3-month Treasury bill rate) are non-matching. In examining the effect of capital controls on monetary autonomy, instead of looking at the policy rates, I think one must look at the interest rates that matter that are further down the yield curve. In the case of the US, for instance, the interest rates that matter are somewhere between the 2-year and 5-year interest rates. The paper also examines whether controls prevent a crisis. However, this aspect is difficult to examine in the context of one country. I think it is better examined in a cross-country study.