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IMF Advice on Capital Flows: How Well is it Supported by Empirical Evidence?

  • Peter J. Montiel EMAIL logo


The 1997–98 Asian financial crisis marked a turning point in the IMF’s previously negative views on the usefulness of capital account restrictions, culminating eventually in the publication of the Fund’s new Institutional View (IV) on the topic in 2012. The IV acknowledged that full capital account liberalization may not always be appropriate, accepted that new restrictions could at times have a useful role to play even in countries that had previously liberalized, and spelled out a specific set of circumstances under which the deploying of new restrictions could be justified as temporary measures in response to large capital flows. This paper documents the important role that empirical research, both by the profession at large as well as by the Fund’s own staff, played in supporting the first two components of the IV. It argues, however, that, empirical support is lacking with respect to the third component of the IV: the conditions under which the deployment of temporary capital account restrictions may be desirable. The conditions stipulated under the IV, which have the effect of considerably restricting the scope of circumstances in which the use of restrictions may be appropriate, are not fully justified by empirical evidence or recent experience and are best understood simply as a vestige of the institution’s pre-IV hostility to the use of restrictions.

Corresponding author: Peter J. Montiel, Economics, Williams College, 24 Hopkins Hall Dr, Williamstown, MA, 01267-2560, USA, E-mail:

Professor of Economics, Williams College. This paper originated as a background paper for the evaluation “IMF Advice on Capital Flows” conducted by the Independent Evaluation Office (IEO) of the International Monetary Fund (IMF). The views expressed in the paper are those of the author and do not necessarily represent those of the IEO or the IMF. Financial support from the IEO is gratefully acknowledged. The author thanks Nicoletta Battini, Charles Collyns, Hali Edison, Prakash Loungani, Alessandro Rebucci, and participants at an IEO seminar for thoughtful comments on an earlier draft.

Funding source: Independent Evaluation Office of the IMF


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Received: 2021-04-13
Accepted: 2022-02-09
Published Online: 2022-09-15

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