Working Paper: NBER ID: w11640
Authors: Ilan Goldfajn; Andr Minella
Abstract: This paper analyzes the relationship between capital account liberalization and macroeconomic volatility using Brazil as a case study. The paper provides several stylized facts regarding the evolution of capital flows and controls in Brazil in the last three decades. We conclude that, notwithstanding the financial crises and macroeconomic volatility of the recent past, capital account liberalization and the floating exchange regime have led to a more resilient economy. Further liberalization of the capital account is warranted and should be accompanied by a broad range of reforms to improve and foster stronger institutions.
Keywords: No keywords provided
JEL Codes: F21; F32; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital account liberalization (F32) | macroeconomic stability (E60) |
| floating exchange rate regime (F33) | macroeconomic stability (E60) |
| higher country risk levels (F34) | greater interest rates (E43) |
| higher country risk levels (F34) | depreciated exchange rates (F31) |
| higher country risk levels (F34) | reduced capital inflows (F32) |
| higher country risk levels (F34) | lower output (E23) |
| capital account liberalization (F32) | shift from portfolio investment to foreign direct investment (F21) |
| capital account liberalization (F32) | more stable consumption growth rates (E21) |