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Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case

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  • Fabio Augusto Reis Gomes
  • Lourenco Senne Paz

Abstract

The Brazilian Trade Balance deficit in the 1990s was blamed on the adopted crawling-peg exchange rate regime in which the real exchange rate was supposedly appreciated. The purpose in this letter is to assess this relationship by using VEC-M model to check if Marshall-Lerner condition and J-curve phenomenon hold. The results indicate that the Marshall-Lerner condition holds and the J-curve would be present in the aftermath of a real exchange rate devaluation.

Suggested Citation

  • Fabio Augusto Reis Gomes & Lourenco Senne Paz, 2005. "Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case," Applied Economics Letters, Taylor & Francis Journals, vol. 12(9), pages 525-528.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:9:p:525-528
    DOI: 10.1080/13504850500076908
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    References listed on IDEAS

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    3. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
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    6. Boyd, Derick & Caporale, Gugielmo Maria & Smith, Ron, 2001. "Real Exchange Rate Effects on the Balance of Trade: Cointegration and the Marshall-Lerner Condition," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 187-200, July.
    7. Bahmani-Oskooee, Mohsen & Malixi, Margaret, 1992. "More evidence on the J curve from LDCs," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 641-653, October.
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