| Abstract: |
Controls on capital inflows have been experiencing a period akin to a
renaissance since the beginning of the global financial crisis in 2008, with
several prominent countries choosing to impose controls; e.g., Thailand,
Korea, Peru, Indonesia, and Brazil. We focus on the case of Brazil, a country
that instituted five changes in its capital account regime in 2008-2011, and
ask what the impacts of these policy changes were. Using the Abadie et al.
(2010) synthetic control methodology, we construct counterfactuals (i.e.,
Brazil with no capital account policy change) for each policy change event. 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
are relaxed as was done in the immediate aftermath of the Lehman bankruptcy in
2008 and in January 2011 by the newly inaugurated government of Dilma
Rousseff. We hypothesize that price-based capital controls’ only perceptible
effect are 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 was widely perceived as ambivalent to markets. An imposition of
controls was not perceived as ‘news’ and thus had no impact. A willingness to
remove controls was perceived, however, as a noteworthy indication that the
government was not as hostile to the international financial markets as many
expected it to be. |