Motivating Capital Controls

Countries implement and liberalize capital controls opportunistically. To show this point, this paper introduces two novel indices—the Financial Account Restrictiveness Index (FARI) and the AREAER Change Index (ACI)—to measure and track capital flow restrictions across 190 countries quarterly from 1999 to 2022. FARI quantifies the restrictiveness of capital accounts, while ACI captures policy changes over time. These indices offer a comprehensive, objective, and high-frequency toolset to analyze capital account policies and their evolution over the past two decades. Using the two indices, the paper highlights global liberalization trends, regional differences, and the cyclical use of capital controls in response to macroeconomic conditions and crises.60