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

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  • Yothin Jinjarak
  • Ilan Noy
  • Huanhuan Zheng

Abstract

Controls on capital inflows have been experiencing a renaissance since 2008, with several prominent emerging markets implementing them. 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. Brazil’s 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19205.

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Date of creation: Jul 2013
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Publication status: published as Jinjarak, Yothin & Noy, Ilan & Zheng, Huanhuan, 2013. "Capital controls in Brazil – Stemming a tide with a signal?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2938-2952.
Handle: RePEc:nbr:nberwo:19205

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References

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Cited by:
  1. Olivier J. Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2013. "Rethinking Macro Policy II," IMF Staff Discussion Notes 13/003, International Monetary Fund.
  2. Huanhuan Zheng & Qingyong Zhang, 2013. "Property Tax in China: Is It Effective in Curbing Housing Price?," Economics Bulletin, AccessEcon, vol. 33(4), pages 2465-2474.
  3. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.

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