Stopping hot money

While high interest rates and foreign exchange sales are the most common wa y of dealing with a speculative attack in the foreign exchange market, seve ral countries resorted to capital controls during recent periods of currenc y market turbulence. The purpose of this study is to use daily financial da ta to examine three of these capital controls episodes-Brazil 1999, Malaysi a 1998, and Thailand 1997. We aim to assess the extent to which the capital controls were effective in delivering the outcomes that motivated their in ception in the first place. We conclude that in two of the three cases (Bra zil and Thailand), the controls did not deliver much of what was intended-a lthough, one does not observe the counterfactual. By contrast, in the case of Malaysia, the controls did align closely with the priors of what control s are intended to achieve: greater interest rate and exchange rate stabilit y and more policy autonomy. (C) 2001 Elsevier Science B.V. All rights reser ved.