Capital Controls in Greece: Effects in consumption and imports using the synthetic control method

Abstract: This paper studies the implementation of capital controls in Greece and examines their impact on consumption and imports. The dataset consists of the quarterly country-level macroeconomic variables, per capita final consumption expenditure of households, per capita imports of goods and services and per capita exports of goods and services, of 10 countries for the period 2010-2016. The method applied and aiming to estimate the effect of capital controls is the synthetic control, which is based on the existence of an intervention of interest. Synthetic control method separates the timeline in pre- and post-capital controls periods and categorizes the countries in treated and untreated, and, using the characteristics of the untreated in the pre-intervention period, it creates a counterfactual that represents the trajectory of the treated country in the absence of the intervention. After applying the synthetic control twice, using consumption as the outcome variable at the first application and imports at the second, the findings show that there is a short-term negative effect of capital controls on both consumption and imports in Greece.