NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bubble Thy Neighbor: Portfolio Effects and Externalities from Capital Controls

Kristin Forbes, Marcel Fratzscher, Thomas Kostka, Roland Straub

NBER Working Paper No. 18052
Issued in May 2012
NBER Program(s):   CF   IFM

We use changes in Brazil's tax on capital inflows from 2006 to 2011 to test for direct portfolio effects and externalities from capital controls on investor portfolios. The analysis is structured based on information from investor interviews. We find that an increase in Brazil's tax on foreign investment in bonds causes investors to significantly decrease their portfolio allocations to Brazil in both bonds and equities. Investors simultaneously increase allocations to other countries that have substantial exposure to China and decrease allocations to countries viewed as more likely to use capital controls. Much of the effect of capital controls on portfolio flows appears to occur through signalling --i.e. changes in investor expectations about future policies-- rather than the direct cost of the controls. This evidence of significant externalities from capital controls suggests that any assessment of controls should consider their effects on portfolio flows to other countries.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18052

Published: Forbes, Kristin J. & Fratzscher, Marcel & Kostka, Thomas & Straub, Roland, 2012. "Bubble thy neighbor: portfolio effects and externalities from capital controls," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-48. citation courtesy of

Users who downloaded this paper also downloaded these:
Magud, Reinhart, and Rogoff w16805 Capital Controls: Myth and Reality - A Portfolio Balance Approach
Forbes and Warnock w17351 Capital Flow Waves: Surges, Stops, Flight, and Retrenchment
Fratzscher w17357 Capital Flows, Push versus Pull Factors and the Global Financial Crisis
Farhi and Werning w18199 Dealing with the Trilemma: Optimal Capital Controls with Fixed Exchange Rates
Klein w18526 Capital Controls: Gates versus Walls
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us