Capital Controls in Brazil – Stemming a Tide with a Signal?

39 Pages Posted: 17 Jul 2015

See all articles by Yothin Jinjarak

Yothin Jinjarak

University of London - SOAS - Department of Financial and Management Studies

Ilan Noy

Victoria University of Wellington

Huanhuan Zheng

National University of Singapore

Date Written: March 22, 2013

Abstract

Controls on capital inflows have been experiencing a renaissance since 2008, with several prominent emerging markets implementing them in recent years. We focus on Brazil, which instituted five changes in its capital account regime in 2008-2011. Using the synthetic control method, we construct counterfactuals (i.e., Brazil with no policy change) for each of these changes. 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 were relaxed. We hypothesize that price-based capital controls’ only perceptible effect is to be found in the content of the signal they broadcast regarding the government’s larger intentions and sensibilities. In the case of Brazil, its left-of-center government’s willingness to remove controls was perceived 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

Suggested Citation

Jinjarak, Yothin and Noy, Ilan and Zheng, Huanhuan, Capital Controls in Brazil – Stemming a Tide with a Signal? (March 22, 2013). IGEF Working Paper No. 14. Available at SSRN: https://ssrn.com/abstract=2631866 or http://dx.doi.org/10.2139/ssrn.2631866

Yothin Jinjarak

University of London - SOAS - Department of Financial and Management Studies ( email )

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Russell Square
London, WC1H 0XG
United Kingdom

HOME PAGE: http://https://sites.google.com/site/yothinjinjarak/

Ilan Noy

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Huanhuan Zheng (Contact Author)

National University of Singapore ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

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