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An alternative methodology for testing currency crises resulting from imbalances in macroeconomic fundamentals

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  • Fernando A. Ribeiro Soares
  • Mauricio Barata de Paula Pinto
  • Tito Belchior Silva Moreira

Abstract

This article analyses whether exchange rate pressures and speculative attacks against the Brazilian currency during the period of exchange rate anchorage resulted from imbalances in economic fundamentals. An alternative methodological approach is used to test whether the deterioration of economic fundamentals can explain the pressure put on the exchange rate during a period of crisis. The most innovative aspect of this approach lies in the development of a construct of fundamentals for the Brazilian economy that incorporates variables related to the external, fiscal and monetary sectors. The results show that macroeconomic imbalances contributed to the currency collapse that occurred in January of 1999.

Suggested Citation

  • Fernando A. Ribeiro Soares & Mauricio Barata de Paula Pinto & Tito Belchior Silva Moreira, 2010. "An alternative methodology for testing currency crises resulting from imbalances in macroeconomic fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 20(13), pages 1051-1056.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:13:p:1051-1056
    DOI: 10.1080/09603101003742531
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    Cited by:

    1. Roberto Meurer, 2011. "Measuring the impact of financial flows on macroeconomic variables: the case of Brazil after the 2008 crisis," Working Papers 0117, Universidade Federal do Paraná, Department of Economics.

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