ECB paper warns of capital control externalities

Euro sign, Frankfurt

A working paper published by the European Central Bank (ECB) on August 10 warns of externalities imposed on other countries by the imposition of capital controls.

The authors, Kristin Forbes, Marcel Fratzscher, Thomas Kostka and Roland Straub, interviewed investors and studied data on Brazilian taxes on foreign fixed-income investments from 2006 to 2011. The researchers suggest that capital controls reduce investment directly by increasing costs and also through a signalling effect, whereby

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