The SETAR model allows the estimation of the upper and lower boundaries of the “no-arbitrage” bands (provided that the series follows a non- linear behaviour), and the speed of convergence outside the band. [...] Du and Schreger (2021) argue that the deviations persist due to regulations imposed on the banks in the aftermath of the crisis, that restricted the flow of US dollars in the global market and created a wedge between the demand for and supply of US dollars. [...] The greater the magnitude of the deviation, the lower the capital account openness of the home country. [...] The existing data on de-jure capital control actions shows that during this period the number of easing events exceeded the number of tightening events, though the magnitude of the easing was substantially lower than what was done in the second half of the sample period. [...] In all, the widening of the no-arbitrage band, and the reduction in the speed of reversion are consistent with the further tightening of capital account restrictions and also the imposition of controls on capital outflows, in the aftermath of the 2008 crisis.
- Pages
- 38
- Published in
- India
