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The exchange rate policy under discussion

Author

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  • Álvaro Antônio Zini Júnior

Abstract

Indicators for Brazil’s real exchange rate are calculated using different definitionsand focusing on what happened to such indices during the Cruzado plan. The realeffective exchange rate shows little appreciation in 1986 although the Cruzado/Dollar ratedid appreciate. The result is troubling in the light of a 25% decrease in Brazil’s trade surplusin 1986. The paper argues that the net trade balance is explained by three variables: the realeffective exchange rate, domestic real income and real income in the rest of the world. Aneconometric exercise shows strong income effects, effects that are ignored by the policy ofminidevaluations. The paper then looks at the suggestion of a dual exchange rate regime forBrazil and concludes that such a system is likely to bring more instability to the economy.An alternative proposal of a “planning approach” to the exchange rate policy is delineated. JEL Classification: F14; F31.

Suggested Citation

  • Álvaro Antônio Zini Júnior, 1989. "The exchange rate policy under discussion," Brazilian Journal of Political Economy, Center of Political Economy, vol. 9(1), pages 43-56.
    • Handle: RePEc:ekm:repojs:v:9:y:1989:i:1:p:43-56:id:1599
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/1599/1585
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    More about this item

    Keywords

    Exchange rate policy; Exchange rate; trade balance; exchange rate system;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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