Ineffective Controls on Capital Inflows Under Sophisticated Financial Markets: Brazil in the Nineties / Bernardo S. de M. Carvalho, Márcio G.P. Garcia.

Format:

Book

Author/Creator:

Carvalho, Bernardo S. de M.

Contributor:

National Bureau of Economic Research.

Garcia, Márcio G.P.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12283.

NBER working paper series no. w12283

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Ineffective Controls on Capital Inflows Under Sophisticated Financial Markets

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

We analyze the Brazilian experience in the 1990s to assess the effectiveness of controls on capital inflows in restricting financial inflows and changing their composition towards long term flows. Econometric exercises (VARs) showed that controls on capital inflows were effective in deterring financial inflows for only a brief period, from two to six months. The hypothesis to explain the ineffectiveness of the controls is that financial institutions performed several operations aimed at avoiding capital controls. To check this hypothesis, we conducted interviews with market players. We collected several examples of the financial strategies engineered to avoid the capital controls and invest in the Brazilian fixed income market. The main conclusion is that controls on capital inflows, while they may be desirable, are of very limited effectiveness under sophisticated financial markets.

Notes:

Print version record

June 2006.