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Expectations and exchange rates in a Keynes–Harvey model: an analysis of the Brazilian case from 2002 to 2017

Author

Listed:
  • Leandro Vieira Araújo Lima

    (PhD Fellow, Federal University of Rio Grande do Sul, Porto Alegre, Brazil and Former Visiting PhD Student, University of Leeds, UK)

  • Fábio Henrique Bittes Terra

    (Professor, Universidade Federal do ABC (UFABC), São Bernardo do Campo, Programa de Pós-Graduação em Economia, Universidade Federal de Uberlândia (PPGE–UFU) and Researcher, National Council for Scientific and Technological Development (CNPq), Brazil)

Abstract

This paper investigates the statistical relationship between the future expectations of the exchange rate and GDP growth and the current nominal exchange rate in Brazil during the period 2002–2017. The theoretical framework on which the paper is based is a decision-making model grounded in Keynes (1921; 1936) and Harvey (2006; 2009a), from which the paper's empirical model emerges. This model is tested empirically with autoregressive distributed lag models to identify short- and long-term statistical relationships in time series. The empirical estimations suggest that expectations of future changes in both the exchange rate and GDP growth have a statistically significant relationship with the current nominal exchange rate in Brazil, just as the Keynes–Harvey model predicts.

Suggested Citation

  • Leandro Vieira Araújo Lima & Fábio Henrique Bittes Terra, 2021. "Expectations and exchange rates in a Keynes–Harvey model: an analysis of the Brazilian case from 2002 to 2017," Review of Keynesian Economics, Edward Elgar Publishing, vol. 9(2), pages 270-288, April.
    • Handle: RePEc:elg:rokejn:v:9:y:2021:i:2:p270-288
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    More about this item

    Keywords

    expectations; exchange rate; Harvey; Keynes;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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