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Trade Elasticities and Market Expectations in Brazil

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  • Claudio Paiva

Abstract

This paper provides econometric estimates of trade elasticities for Brazil obtained through cointegration and vector auto regression models and controlling for the effects of exchange rate volatility, capacity utilization, and changes in import tariffs. The results suggest that (i) recent market expectations may have been unduly pessimistic regarding the responsiveness of Brazil''s trade flows to the real exchange rate, but (ii) the GDP growth rates targeted by the new government may put downward pressure on the exchange rate and thus render the achievement of official inflation targets considerably more difficult if structural reforms are not implemented.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/140.

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Length: 23
Date of creation: 01 Jul 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/140

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Related research

Keywords: Trade; Exchange rates; Economic models; exchange rate; reer; export volumes; exchange rate volatility; real effective exchange rate; real exchange rate; trade flows; effective exchange rate; exchange rate depreciation; elasticity of exports; real exchange rate volatility; trade surplus; total export; export incentives; export performance; total exports; trade liberalization; exchange rate regimes; bilateral exchange rate; daily exchange rate; nominal exchange rate; export activities; exchange rate uncertainty; floating exchange rate; real exchange rates; open economy macroeconomics; exchange rate movements; exchange rate regime; foreign exchange; foreign exchange market; capital flows; aggregate exports; export demand; exchange rate pass;

References

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  1. Jackson, John D. & Smyth, David J., 1985. "Specifying differential cyclical response in economic time series : Capacity utilization and demand for imports," Economic Modelling, Elsevier, vol. 2(2), pages 149-161, April.
  2. Jeanne, Olivier & Rose, Andrew K, 1999. "Noise Trading and Exchange Rate Regimes," CEPR Discussion Papers 2142, C.E.P.R. Discussion Papers.
  3. Luiz Fernando Figueiredo & Pedro Fachada & Sérgio Goldenstein, 2002. "Monetary Policy in Brazil: Remarks on the Inflation Targeting Regime, Public Debt Management and Open Market Operations," Working Papers Series 37, Central Bank of Brazil, Research Department.
  4. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
  5. Arize, Augustine C & Osang, Thomas & Slottje, Daniel J, 2000. "Exchange-Rate Volatility and Foreign Trade: Evidence from Thirteen LDC's," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 10-17, January.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Abdelhak Senhadji, 1998. "Time-Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 236-268, June.
  8. M.B. Devereux & Ch. Engel, 2003. "Exchange Rate Pass-Through, Exchange Rate Volatility, and ExchangeRate Disconnect," DNB Staff Reports (discontinued) 77, Netherlands Central Bank.
  9. Marcelo Kfoury Muinhos, 2001. "Inflation Targeting in an Open Financially Integrated Emerging Economy: the case of Brazil," Working Papers Series 26, Central Bank of Brazil, Research Department.
  10. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  11. Bughin, Jacques, 1996. "Capacity Constraints and Export Performance: Theory and Evidence from Belgian Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 187-204, June.
  12. Caporale, Guglielmo Maria & Chui, Michael K F, 1999. "Estimating Income and Price Elasticities of Trade in a Cointegration Framework," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 254-64, May.
  13. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
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Cited by:
  1. Brieuc Monfort, 2008. "Chile," IMF Working Papers 08/128, International Monetary Fund.
  2. Thierry Buchs, 2005. "Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications," International Trade 0502013, EconWPA.

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