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The value of the exchange rate and the Dutch disease

Author

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  • Luiz Carlos Bresser-Pereira

    (Emeritus professor of Getulio Vargas Foundation.)

Abstract

This paper revisits the original (2008) paper on the Dutch disease, which defined it by the existence of two exchange rate equilibriums (the current and the industrial exchange rate equilibriums). Its novelty is in claiming that, as we have a value and a market price for each good or service, we also have a value and a market price for foreign money. The value is the cost plus reasonable profit corresponding to the exchange rate that makes competitive the country’s competent business enterprises; the nominal exchange rates floats around the value according to the demand and supply of foreign money. This basic distinction of the exchange rate in terms of value and in terms of price allows us to understand that the two equilibriums are defined in value terms, and opens room for a clear distinction of the policies that affect the value from the ones that affect the market price of the exchange rate. JEL Classification: D46; F31.

Suggested Citation

  • Luiz Carlos Bresser-Pereira, 2013. "The value of the exchange rate and the Dutch disease," Brazilian Journal of Political Economy, Center of Political Economy, vol. 33(3), pages 371-387, July.
    • Handle: RePEc:ekm:repojs:v:33:y:2013:i:3:id:95437
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    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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