Do capital controls enhance monetary Independence?

International monetary policy trilemma-the tradeoff among exchange rate stability, monetary independence, and unrestricted capital mobility-is an important constraint for policy makers in an open economy. This paper investigates an aspect of the hypothesis that has received relatively less attention: whether a decrease in capital mobility through imposition of capital controls, while holding the degree of exchange rate stability constant, will enhance monetary independence. Using a panel dataset covering 88 countries for the 1995-2010 period and the generalized method of moments (GMM) estimation, we find that: (1) capital controls help improve a country's monetary independence; (2) the effectiveness of capital controls depends on the types of assets and the direction of flows that are imposed; and (3) the choice of exchange rate regime has an important impact on the effectiveness of capital controls on monetary independence.