Capital Controls and Spillover Effects: Evidence from Latin-American Countries

39 Pages Posted: 5 Jan 2012  

Frederic J. Lambert

International Monetary Fund (IMF)

Julio Ramos-Tallada

Banque de France

Cyril Rebillard

International Monetary Fund (IMF)

Date Written: December 1, 2011

Abstract

The surge in capital inflows towards emerging countries after 2009 has revived the debate about capital controls. This paper analyzes some of the international implications of restrictions on capital inflows. Focusing on a sample of Latin-American countries, we use detailed balance of payments data and higher frequency data on portfolio bond and equity flows to investigate the potential spillover effects that capital controls imposed in one country may have on neighboring economies. Using various econometric approaches, we find that a rise in the Brazilian tax on portfolio bond inflows has been affecting other Latin-American economies through significant surges in portfolio funds invested either in fixed income or equity securities. The effect is usually short lasting and followed by rapid reductions in those inflows. Yet it can be large. According to our estimates, the increase in the Brazilian tax on portfolio bond inflows may account for the entire surge in bond inflows to Mexico between September and October 2010.

Keywords: capital flows, capital controls, spillovers, Latin America, VAR

JEL Classification: F32, F33, F42

Suggested Citation

Lambert, Frederic J. and Ramos-Tallada, Julio and Rebillard, Cyril, Capital Controls and Spillover Effects: Evidence from Latin-American Countries (December 1, 2011). Banque de France Working Paper No. 357. Available at SSRN: https://ssrn.com/abstract=1980091 or http://dx.doi.org/10.2139/ssrn.1980091

Frederic J. Lambert (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Julio Ramos-Tallada

Banque de France ( email )

Paris
France

Cyril Rebillard

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Paper statistics

Downloads
165
Rank
144,722
Abstract Views
1,395