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Financial integration and exchange rate determination: a Brazilian case study

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  • Annina Kaltenbrunner

Abstract

This paper investigates the impact on exchange rate determination of two recent changes in developing and emerging countries' financial integration: first, the rising volume and heterogeneity of short-term portfolio flows; second, foreign investors' increased exposure to domestic rather than foreign currency assets. In its analysis of Brazil, the paper shows that both changes have potentially destabilizing implications for the exchange rate and may create the risk of self-feeding bubble dynamics leading to large and sudden swings in exchange rates. The results have important implications for the regulation of international capital movements and choice of exchange rate regime.

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  • Annina Kaltenbrunner, 2015. "Financial integration and exchange rate determination: a Brazilian case study," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(2), pages 129-149, March.
    • Handle: RePEc:taf:irapec:v:29:y:2015:i:2:p:129-149
    DOI: 10.1080/02692171.2014.956703
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    1. Corden, W. Max, 1995. "Economic Policy, Exchange Rates, and the International System," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226115917, January.
    2. William Ellery Channing, 1994. "Change," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(1), pages 15-15, January.
    3. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, January.
    4. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373, January.
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    1. Zunaira Aman & Brigitte Granville & Sushanta K. Mallick & Ilayda Nemlioglu, 2024. "Does greater financial openness promote external competitiveness in emerging markets? The role of institutional quality," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 486-510, January.
    2. Peng, Wei & Hu, Shichao & Chen, Wang & Zeng, Yu-feng & Yang, Lu, 2019. "Modeling the joint dynamic value at risk of the volatility index, oil price, and exchange rate," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 137-149.
    3. Michail Nerantzidis & Nikolaos Stoupos & Panayiotis Tzeremes, 2024. "Realized Volatility Spillover Connectedness among the Leading European Currencies after the End of the Sovereign-Debt Crisis: A QVAR Approach," JRFM, MDPI, vol. 17(8), pages 1-17, August.
    4. Giorgos Galanis & Giorgos Gouzoulis, 2020. "Financialisation, working conditions and contagion dynamics in developing and emerging economies," Working Papers PKWP2018, Post Keynesian Economics Society (PKES).

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