Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80355
Authors: 
de Roure, Calebe
Furniagiev, Steven
Reitz, Stefan
Year of Publication: 
2013
Series/Report no.: 
Kiel Working Paper 1865
Abstract: 
This paper uses a microstructure approach to analyze the effectiveness of capital controls introduced in Brazil to counter an appreciation of the Real. Based on a rich data set from the Brazilian foreign exchange market, we estimate a reduced-form VAR to characterize the interaction of the central bank, financial and commercial customers in times of regulatory policy measures. Controlling for regular FX interventions we find that capital controls change market participants' behavior. Referring to thesource of order flow, we find no evidence that the appreciation of the Real is driven by financial customers' activity. Instead, commercial customers seem to be a primary driver of the Real within our model. To the extent that capital controls influence commercial customers' order flow, this is the likely channel policy makers use to respond to a perceived loss of international competitiveness.
Subjects: 
Foreign Exchange
Sterilized Intervention
Macroprudential Policies
Market Microstructure
JEL: 
F31
E58
G14
G15
Document Type: 
Working Paper

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