Country risk endogeneity, capital flows and capital controls in Brazil

Vol. 23 No. 1 (2003)

Jan-Mar / 2003
Published January 1, 2003
PDF-English
PDF-English

How to Cite

Vieira, Flávio, and Márcio Holland. 2003. “Country Risk Endogeneity, Capital Flows and Capital Controls in Brazil”. Brazilian Journal of Political Economy 23 (1):12-38. https://doi.org/10.1590/0101-31572003-0703.

Country risk endogeneity, capital flows and capital controls in Brazil

Flávio Vieira
Professor of Economics, Universidade Federal de Uberlândia -UFU, Uberlândia/MG, Brasil.
Márcio Holland
Professor of Economics, Universidade Federal de Uberlândia – UFU, Uberlândia/MG, Brasil; CNPq Researcher.
Brazilian Journal of Political Economy, Vol. 23 No. 1 (2003), Jan-Mar / 2003, Pages 12-38

Abstract

The main goal of the paper is to analyze the relationship between capital flows, country risk, capital controls and interest rate differential in Brazil since the mid of 90s. We know how controversial is the role and the effectiveness of capital controls during episodes of crises, and how emerging countries can be trapped in a vicious circle expressed through the behavior of two crucial variables: the country risk and the interest rate. Empirical results suggest that interest rate differential is endogenous to country risk, mainly explained when we consider the existence of a probability of default in the context of a high public debt.

JEL Classification: F30; E43; E44.


Keywords: Capital flows country-risk capital control