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Exchange rate regulations, the behavior of exchange rates, and macroeconomic stability in Brazil

Author

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  • Francisco Eduardo Pires de Souza

    (Institute of Economics, Federal University of Rio de Janeiro.)

  • Fernando J. Cardim de Carvalho

    (Institute of Economics, Federal University of Rio de Janeiro.)

Abstract

In the last two decades an entirely new set of rules governing the foreign exchange transactions was established in Brazil, substituting for the framework inherited from the 1930’s. Foreign exchange controls were dismantled and a floating exchange rate regime replaced different forms of peg. In this paper we argue that although successful by comparison to previous experiences, the current arrangement has important flaws that should be addressed. We discuss how it first led to high volatility and extremely high interest rates, which, when overcome, gave way to a long lasting appreciation of the real exchange rate with adverse consequences to industry. JEL Classification: E6; F3; F4.

Suggested Citation

  • Francisco Eduardo Pires de Souza & Fernando J. Cardim de Carvalho, 2011. "Exchange rate regulations, the behavior of exchange rates, and macroeconomic stability in Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 31(4), pages 563-578, October.
    • Handle: RePEc:ekm:repojs:v:31:y:2011:i:4:id:95533
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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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