International reserves, capital controls, and economic stability

Financial crisis in Southeast Asia made most of emerging markets increase their holding of international reserves, while the 2008 global financial crisis made capital controls come back. This paper investigates whether the international reserves and capital controls affect economic performance of emerging markets in crisis, and present a model to configure the two policies of a country. We find that greater international reserves and capital controls are associated with greater economic stability. The monetary authority could choose a different combination of international reserves and capital controls for trade-off between economic growth and economic stability to achieve the optimization goal.