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Currency Stabilisation under Conditions of International Capital Mobility: The Case of Brazil

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    Abstract

    This paper challenges conventional interpretations of the real plan in two different ways. First, it argues that the contractionary monetary and fiscal policies that adorned its launch were largely irrelevant. Inflation was reduced primarily by the elimination of inertia and the repression of the distributive conflict through the internationalisation and liberalisation of the economy. Second, it shows that the plan is inconsistent, because it relies heavily on permanently high domestic interest rates in order to attract foreign capital. However, they destabilise the balance of payments and worsen the fiscal deficit endogenously.

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    File URL: http://www.sbu.ac.uk/cibs/acrobats/13saad98.pdf
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    Bibliographic Info

    Paper provided by London South Bank University CIBS in its series CIBS Research Papers in International Business with number 13-98.

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    Length: 29 pages
    Date of creation: 1998
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    Handle: RePEc:sbu:cibswp:13-98

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    Keywords: currency stabilisation in brazil;

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    1. Eliana A. Cardoso & Rudiger Dornbusch, 1987. "Brazil's Tropical Plan," NBER Working Papers 2142, National Bureau of Economic Research, Inc.
    2. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
    3. Carmem Aparecida Feijo & Fernando J. Cardim De Carvalho, 1992. "The Resilience of High Inflation: Recent Brazilian Failures with Stabilization Policies," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 15(1), pages 109-124, October.
    4. Cysne, Rubens Penha & Lisbôa, Paulo César Coimbra, 2004. "Imposto Inflacionário e Transferências Inflacionárias no Mercosul e nos Estados Unidos," Economics Working Papers (Ensaios Economicos da EPGE) 572, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    5. de Carvalho, Fernando J Cardim, 1993. "Strato-inflation and High Inflation: The Brazilian Experience," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 17(1), pages 63-78, March.
    6. Batista Junior, Paulo Nogueira, 1996. "Plano Real, Estabilização Monetária e Desequilíbrio Externo," Textos para discussão 50, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    7. Kane, Cheikh & Morisett, Jacques, 1993. "Who would vote for inflation in Brazil? : an integrated framework approach to inflation and income distribution," Policy Research Working Paper Series 1183, The World Bank.
    8. Jeffrey Sachs & Alvaro A. Zini Jr., 1996. "Brazilian Inflation and the Plano Real," The World Economy, Wiley Blackwell, vol. 19(1), pages 13-37, 01.
    9. Rudiger Dornbusch, 1997. "Brazil's Incomplete Stabilization and Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 367-404.
    10. Cysne, Rubens Penha, 1993. "Imposto inflacionário e transferências inflacionárias no Brasil," Economics Working Papers (Ensaios Economicos da EPGE) 219, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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