Capital Controls in Brazil – Stemming a Tide with a Signal

Yothin Jinjarak, Ilan Noy and Huanhuan Zheng

No 201213, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: Controls on capital inflows have been experiencing a period akin to a renaissance since the beginning of the global financial crisis in 2008, with several prominent countries choosing to impose controls; e.g., Thailand, Korea, Peru, Indonesia, and Brazil. We focus on the case of Brazil, a country that instituted five changes in its capital account regime in 2008-2011, and ask what the impacts of these policy changes were. Using the Abadie et al. (2010) synthetic control methodology, we construct counterfactuals (i.e., Brazil with no capital account policy change) for each policy change event. We find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows, but we observe some modest and short-lived success in preventing further declines in inflows when the capital controls are relaxed as was done in the immediate aftermath of the Lehman bankruptcy in 2008 and in January 2011 by the newly inaugurated government of Dilma Rousseff. We hypothesize that price-based capital controls’ only perceptible effect are to be found in the content of the signal they broadcast regarding the government’s larger intentions and sensibilities. Brazil’s left-of-center government was widely perceived as ambivalent to markets. An imposition of controls was not perceived as ‘news’ and thus had no impact. A willingness to remove controls was perceived, however, as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be.

Keywords: Capital control; Brazil; Global financial crisis; Mutual fund flows; Exchange rate (search for similar items in EconPapers)
JEL-codes: E60 F32 G15 G18 G23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-07-17
New Economics Papers: this item is included in nep-ifn, nep-lam, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.economics.hawaii.edu/research/workingpapers/WP_12-13.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Capital controls in Brazil – Stemming a tide with a signal? (2013)
Working Paper: Capital Controls in Brazil - Stemming a Tide with a Signal? (2013)
Working Paper: Capital Controls in Brazil: Stemming a Tide with a Signal? (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:201213

Ordering information: This working paper can be ordered from
http://www.economics ... esearch/working.html

Access Statistics for this paper

More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Web Technician ().