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External financial fragility ant the limits of the exchange rate policy in Real

Author

Listed:
  • Luiz Fernando Rodrigues de Paula
  • Antonio José Alves Júnior

Abstract

This article assesses the impacts of Brazil’s exchange-based stabilization plan(Plano Real) on the country’s external financial fragility and discusses alternative exchangepolicy to overcome the Brazil’s external vulnerability. In order to do so, we have developedan index for this external financial fragility, which is applied to a time series of foreign sectorvariables from 1992 to 1997. The evidence shows that Brazilian external financial fragility has grown during the first three years and half after the Real Plan, particularly in 1996and 1997. Using this evidence, the paper questions the effectiveness of the government’sadjustment strategy for the industrial sector, based on four pillars: price stabilization, tradeand capital liberalization and exchange appreciation. Finally, we conclude that the scopefor changes in currently exchange policy is too small: the government is prisoner of a self--inflicted “exchange trap”. JEL Clasisifcation: F41; G28; E12.

Suggested Citation

  • Luiz Fernando Rodrigues de Paula & Antonio José Alves Júnior, 1999. "External financial fragility ant the limits of the exchange rate policy in Real," Brazilian Journal of Political Economy, Center of Political Economy, vol. 19(1), pages 77-100.
    • Handle: RePEc:ekm:repojs:v:19:y:1999:i:1:p:77-100:id:1047
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    More about this item

    Keywords

    External financial fragility; exchange rate policy; Plano Real; currency crisis;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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