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Exchange market pressure and capital controls, the case of Brazil
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Resumo(s)
When defining monetary policy, emerging countries tend to protect their independent monetary policy, by intervening in foreign exchange markets to stabilise the exchange rate and by using capital controls to insulate their domestic economy from international investment fluctuations. In this scenario, currency volatility is dampened by official interventions and so an index that reveals the actual pressure affecting a currency is necessary. This work proposes an Exchange Market Pressure measure for the Brazilian economy, incorporating an endogenous proxy for capital control policies. We find out that there is evidence of pressure being relieved by the Brazilian central authorities and that the inclusion of a capital control proxy in the measure inflates the power of reserves in relieving currency pressure.
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Palavras-chave
Brazil Capital controls Exchange rate market pressure Time varying coefficients