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Effectiveness of Capital Controls: the Case of Brazil

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  • William Miles

Abstract

The emerging market crises of the past decade have led some observers to question the wisdom of a completely open capital account. But even if capital controls are desirable, empirical evidence is needed to demonstrate when and under what circumstances restrictions are effective. This paper investigates this issue for Brazil. Much analysis of policy effectiveness has been conducted with vector autoregressions. The validity of policy inference based on this technique has been cast into doubt, so this paper employs a more “narrative” method, modeling flows to Brazil as ARMAX processes. This approach yields the interesting result that controls can be effective when the reaction of financial market participants to restrictions is taken into account, and derivatives and debt market activities curtailed.

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  • William Miles, 2004. "Effectiveness of Capital Controls: the Case of Brazil," Review of Development Economics, Wiley Blackwell, vol. 8(1), pages 68-80, February.
    • Handle: RePEc:bla:rdevec:v:8:y:2004:i:1:p:68-80
    DOI: 10.1111/j.1467-9361.2004.00220.x
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    References listed on IDEAS

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    1. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
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    Cited by:

    1. Jonathan David Ostry & Atish R. Ghosh & Karl F Habermeier & Marcos d Chamon & Mahvash S Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows; The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.

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