The microstructure of exchange rate management: FX intervention and capital controls in Brazil

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1865

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Central Banks and Their Policies ; Information and Market Efficiency; Event Studies; Insider Trading ; International Financial Markets
• Subject: Foreign Exchange ; Sterilized Intervention ; Macroprudential Policies ; Market Microstructure

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): de Roure, Calebe ; Furniagiev, Steven ; Reitz, Stefan
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/80355
• Last update: 10.03.2025, 11:43 AM CET