Capital Flows to Brazil: The Endogeneity of Capital Controls

IMF Working Papers, September 1, 1997

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Capital Flows to Brazil: The Endogeneity of Capital Controls

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Bibliographic details

• Authors: Eliane A. Cardoso, Ilan Goldfajn
• Published: September 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451942989.001

Research question and scope

• Examines determinants of capital flows to Brazil while accounting for the endogeneity of capital controls by modeling a government that sets controls in response to capital flows.
• Focuses on private capital flows, capital inflows, capital outflows, and the interaction with capital control measures and interest differentials.

Data and methodology

• Constructs an index of capital controls for Brazil.
• Estimates a vector autoregression (VAR) with:
  • capital flows,
  • controls,
  • interest differentials.
• Publication details:
  • Authors: Eliane A. Cardoso, Ilan Goldfajn
  • Date: September 1, 1997
  • Pages: 48
  • Volume: 1997
  • Issue: 115
  • Series: Working Paper No. 1997/115
  • DOI: https://doi.org/10.5089/9781451942989.001
  • Stock No: WPIEA1151997
  • ISBN: 9781451942989
  • ISSN: 1018-5941

Key findings

• The government reacts strongly to capital flows:
  • increases controls on inflows during booms,
  • relaxes controls in moments of distress.
• Controls have been temporarily effective in altering:
  • levels of capital flows,
  • composition of capital flows.
• Controls have had no sustained effects in the long run.

Policy implications

• Capital controls can be used as a short-term policy tool to influence the level and composition of flows.
• Reliance on controls alone is unlikely to produce long-run changes in capital flow dynamics given the lack of sustained effects identified.

IMF Working Paper: "Capital Flows to Brazil: The Endogeneity of Capital Controls", Eliane A. Cardoso and Ilan Goldfajn, September 1, 1997 (Working Paper No. 1997/115).

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