Capital Controls and the Cost of Debt

Eugenia Andreasen (), Martin Schindler and Patricio Valenzuela

No 307, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: Using a novel panel data set for international corporate bonds and capital account restrictions in advanced and emerging economies, we find that restrictions on capital inflows produce a substantial and economically meaningful increase in corporate bond spreads. By contrast, we find no robust significant effect of restrictions on outflows. The effect of capital account restrictions on inflows is particularly strong for bonds maturing in the short-term, issued by small firms and in countries with underdeveloped financial markets. Additionally, the paper shows that capital account restrictions on inflows have a greater effect during periods of financial distress than during periods of financial stability. These results are suggestive of a causal interpretation of the estimated effects and establish a novel channel through which capital controls affect economic outcomes.JEL CODE: F3, F4, G1, G3. Key words: KEY WORDS: Credit spreads; Capital account restrictions; Financial instability; Financial openness.

Date: 2015
New Economics Papers: this item is included in nep-ifn and nep-opm
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Related works:
Journal Article: Capital Controls and the Cost of Debt (2019)
Working Paper: Capital Controls and the Cost of Debt (2017)
Working Paper: Capital Controls and the Cost of Debt (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:307

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