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Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications

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  • Thierry Buchs

Abstract

This paper examines the determinants of the real effective exchange rate (REER) in Brazil, from 1994 to 2003. Building on a standard theoretical model and based on the Johansen cointegration estimation, the main finding is that much of the long-run behavior of the REER can be explained by relative productivity differentials, real commodity prices, government expenditures on tradables and non-tradables, trade openness and real interest differentials. On the basis of these fundamentals, the level of misalignment of the Real was found to be surprisingly modest during the Real Plan (1994-1998). As of end 2003, the Real was found to be slightly appreciated with respect to the estimated equilibrium level, although the extent of the misalignment appears to be small as well. The paper also discusses the implications of these findings with regard to trade competitiveness.

Suggested Citation

  • Thierry Buchs, 2005. "Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications," International Trade 0502013, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpit:0502013
    Note: Type of Document - pdf; pages: 34
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    References listed on IDEAS

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    1. International Monetary Fund, 2001. "Brazil: Selected Issues and Statistical Appendix," IMF Staff Country Reports 2001/010, International Monetary Fund.
    2. Mr. Claudio A Paiva, 2003. "Trade Elasticities and Market Expectations in Brazil," IMF Working Papers 2003/140, International Monetary Fund.
    3. Mr. Willy A Hoffmaister & Mr. Carlos I. Medeiros & Pierre-Richard Agénor, 1997. "Cyclical Fluctuations in Brazil's Real Exchange Rate: The Role of Domestic and External Factors," IMF Working Papers 1997/128, International Monetary Fund.
    4. International Monetary Fund, 1998. "Brazil: Recent Economic Developments," IMF Staff Country Reports 1998/024, International Monetary Fund.
    5. Alberola, Enrique & Lopez, Humberto & Serven, Luis, 2004. "Tango with the Gringo: the hard peg and real misalignment in Argentina," Policy Research Working Paper Series 3322, The World Bank.
    6. Bacha, Edmar, 1997. "Plano Real: uma segunda avaliação," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1541.
    7. Michael R. Pakko & Patricia S. Pollard, 2003. "Burgernomics: a big MacT guide to purchasing power parity," Review, Federal Reserve Bank of St. Louis, vol. 85(Nov), pages 9-28.
    8. Mr. Taimur Baig & Mr. Ilan Goldfajn, 2000. "The Russian Default and the Contagion to Brazil," IMF Working Papers 2000/160, International Monetary Fund.
    9. Ms. Ratna Sahay & Mr. Luis Felipe Céspedes & Mr. Paul Cashin, 2002. "Keynes, Cocoa, and Copper: In Search of Commodity Currencies," IMF Working Papers 2002/223, International Monetary Fund.
    10. Ms. Susana Garcia Cervero & J. Humberto Lopez & Mr. Enrique Alberola Ila & Mr. Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates: Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 1999/175, International Monetary Fund.
    11. Mr. Ronald MacDonald & Mr. Luca A Ricci, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 2003/044, International Monetary Fund.
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    Citations

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    Cited by:

    1. Amir H. Mozayani & Sanaz Parvizi, 2016. "Exchange Rate Misalignment in Oil Exporting Countries (OPEC): Focusing on Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(2), pages 261-276, Spring.
    2. Jorge Carrera & Blaise Gnimassoun & Valérie Mignon & Romain Restout, 2021. "Currency Misalignments and Exchange Rate Regimes in Latin American Countries: A Trade-Off Issue," Annals of Economics and Statistics, GENES, issue 141, pages 71-102.
    3. Sosunov, K. & Ushakov, N., 2009. "Determination of the Real Exchange Rate of the Ruble and Assessment of Long-Run Policy of Real Exchange Rate Targeting," Journal of the New Economic Association, New Economic Association, issue 3-4, pages 97-121.
    4. Nikolaos Giannellis & Minoas Koukouritakis, 2018. "Currency Misalignments in the BRIICS Countries: Fixed Vs. Floating Exchange Rates," Open Economies Review, Springer, vol. 29(5), pages 1123-1151, November.
    5. Giannellis, Nikolaos & Koukouritakis, Minoas, 2013. "Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 202-218.

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    More about this item

    Keywords

    Brazil; Real Exchange Rate; Trade;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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