The microstructure of exchange rate management: FX intervention and capital controls in Brazil

Calebe de Roure, Steven Furniagiev and Stefan Reitz

No 1865, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper uses a microstructure approach to analyze the effectiveness of capital controls introduced in Brazil to counter an appreciation of the Real. Based on a rich data set from the Brazilian foreign exchange market, we estimate a reduced-form VAR to characterize the interaction of the central bank, financial and commercial customers in times of regulatory policy measures. Controlling for regular FX interventions we find that capital controls change market participants' behavior. Referring to thesource of order flow, we find no evidence that the appreciation of the Real is driven by financial customers' activity. Instead, commercial customers seem to be a primary driver of the Real within our model. To the extent that capital controls influence commercial customers' order flow, this is the likely channel policy makers use to respond to a perceived loss of international competitiveness.

Keywords: Foreign Exchange; Sterilized Intervention; Macroprudential Policies; Market Microstructure (search for similar items in EconPapers)
JEL-codes: E58 F31 G14 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The microstructure of exchange rate management: FX intervention and capital controls in Brazil (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1865

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