Long-Run Determinants of the Brazilian Real: a closer look at commodities
AbstractWe use cointegration analysis to show that the long-run behavior of the Brazilian real effective exchange rate betweeen January 1999 and September 2012 can largely be explained by the price variation of a basket of five commodities - that accounted for 51% of Brazilian export revenues in 2011. We estimate that a 25% real variation in the price of these five commodities moves the fundamental long-run real exchange rate by about 10%. Changes in interest rate differentials do not explain short or long term movements in the exchange rate during this period. Furthermore, we find that deviations of the real effective exchange rate from the long run equilibrium level have an estimated half-life of approximately 8 months. The growing exports of oil & fuel and of iron ores, as well as the important oil discoveries in the pre-salt layer, suggest that commodity prices will continue to influence the value of the Real in future.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 314.
Date of creation: Jul 2013
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