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Capital controls and spillover effects: evidence from Latin-American countries

Author

Listed:
  • Lambert, F.
  • Ramos-Tallada, J.
  • Rebillard, C.

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.

Suggested Citation

  • Lambert, F. & Ramos-Tallada, J. & Rebillard, C., 2011. "Capital controls and spillover effects: evidence from Latin-American countries," Working papers 357, Banque de France.
  • Handle: RePEc:bfr:banfra:357
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. J. Ramos-Tallada., 2013. "The IMF and management of capital flows: the long road towards a pragmatic approach," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 31, pages 63-85, Autumn.
    2. Atish R. Ghosh & Mahvash S Qureshi & Naotaka Sugawara, 2014. "Regulating Capital Flows at Both Ends; Does it Work?," IMF Working Papers 14/188, International Monetary Fund.
    3. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    4. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.
    5. Giordani, Paolo E. & Ruta, Michele & Weisfeld, Hans & Zhu, Ling, 2017. "Capital flow deflection," Journal of International Economics, Elsevier, vol. 105(C), pages 102-118.
    6. repec:mtp:titles:0262037165 is not listed on IDEAS
    7. Hardik A. Marfatia, 2016. "The Role of Push and Pull Factors in Driving Global Capital Flows," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 62(2), pages 117-146.
    8. Fernando Avalos & Ramon Moreno & Tania Romero, 2015. "Leverage on the buy side," BIS Working Papers 517, Bank for International Settlements.
    9. Pinshi Paula, Christian, 2016. "Boucle rétroactive entre la volatilité des flux de capitaux et la stabilité financière : résultat pour la République démocratique du Congo
      [Feedback effect between Volatility of capital flows and f
      ," MPRA Paper 78051, University Library of Munich, Germany, revised 28 Mar 2017.
    10. Ulrich Volz, 2016. "Regional Financial Integration in East Asia against the Backdrop of Recent European Experiences," International Economic Journal, Taylor & Francis Journals, vol. 30(2), pages 272-293, June.
    11. repec:eee:jimfin:v:75:y:2017:i:c:p:47-68 is not listed on IDEAS
    12. Gurnain Pasricha & Matteo Falagiarda & Martin Bijsterbosch & Joshua Aizenman, 2015. "Domestic and Multilateral Effects of Capital Controls in Emerging Markets," NBER Working Papers 20822, National Bureau of Economic Research, Inc.
    13. Pierre-Richard Agénor & Pengfei Jia, 2015. "Capital Controls and Welfare with Cross-Border Bank Capital Flows," Centre for Growth and Business Cycle Research Discussion Paper Series 212, Economics, The Univeristy of Manchester.
    14. Christian Pinshi, 2017. "Feedback effect between Volatility of capital flows and financial stability: evidence from Democratic Republic of Congo," Papers 1708.07636, arXiv.org.
    15. Beirne, John & Friedrich, Christian, 2017. "Macroprudential policies, capital flows, and the structure of the banking sector," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 47-68.
    16. Eichengreen, Barry & Rose, Andrew, 2014. "Capital Controls in the 21st Century," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 1-16.
    17. Rumile Arana & Francisco A. Ramirez & Allan Wright, 2017. "Credit Risks and Monetary Policy within Caribbean Economies," IDB Publications (Working Papers) 8268, Inter-American Development Bank.

    More about this item

    Keywords

    capital flows; capital controls; spillovers; Latin America; VAR.;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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