Arbeitspapier

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

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.

Language
Englisch

Bibliographic citation
Series: Kiel Working Paper ; No. 1865

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

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

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • de Roure, Calebe
  • Furniagiev, Steven
  • Reitz, Stefan
  • Kiel Institute for the World Economy (IfW)

Time of origin

  • 2013

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