CAPITAL FLOWS TO BRAZIL - THE ENDOGENEITY OF CAPITAL CONTROLS

This paper creates an index of capital controls to analyze the determi nants of capital flows to Brazil, accounting for the endogeneity of ca pital controls by considering a government that sets controls in respo nse to capital flows. It finds that the government reacts strongly to capital flows by increasing controls on inflows during booms and relax ing them in moments of distress. The paper estimates a vector autoregr ession with capital flows, controls, and interest differentials. It sh ows that controls have been temporarily effective in altering levels a nd composition of capital flows but have had no sustained effects in t he long run.