To: Haim R. Branisteanu who wrote (94712 ) 9/18/2012 6:48:04 AM From: elmatador Read Replies (2) | Respond to the impact on capital flows by temporary controls is pretty much “zero”. USD will flow com gusto.by Stefan Wagstyl when Brazil announced the start of the “currency wars” in 2010 South Korea, Peru and Thailand followed suit With the Fed now launching a new round of monetary easing in the shape of QE3 Capital Controls: Gates and Walls , Professor Michael Klein of Tufts University argues that there is a clear difference between “long-standing capital controls” – as employed by China and India – and the temporary “episodic” capital controls that were implemented by Brazil and other countries after the 2008 financial crisis. Episodic controls are likely to be less efficacious than long-standing controls for a number of reasons. Evasion is easier in a country that already has experience in international capital markets than in a country that does not have this experience. Countries with long-standing controls are likely to have incurred the sunk costs required to establish an infrastructure of surveillance, reporting and enforcement that makes those controls more effective. Comparing China and Brazil he says: For example, there is a widespread view that Chinese capital controls are important for the government’s ability to manage the value of the renminbi. Did a policy like the Brazilian [securities tax] temper appreciations a well? The estimates in this paper suggest that the answer is no. There is also a view that countries like China and India, which had long-standing controls in place, were spared the financial upheavals that roiled more open economies. As discussed later in this paper, evidence does not point to the same protection from episodic controls. As Klein writes, the consensus in economic theory has long said that long-standing capital controls hamper economic development. But recent theoretical papers have argued that short-term temporary controls could benefit an economy by controlling financial volatility, especially the ebb and flow of hot money.which readers can study by following this link These results are important from a policy perspective. Practical discussion on the desirability of capital controls is about episodic controls because these can be imposed and removed as conditions change. But the results in this section do not show any evidence of the efficacy of these controls. All this matters to policy makers. Supporters of short-term controls, notably Guido Mantega, the Brazilian finance minister, argue that they are useful at times of financial turmoil. But if they don’t work they may be worse than useless. The political controversy that they generate may be distracting policy makers from other, perhaps more effective, approaches.
