The Political Economy of Exchange Rate Policy in Brazil: 1964-1997
This paper analyzes political economy determinants of exchange rate policy in Brazil over the past thirty years. Two complementary methodologies are used. The first consists of investigating the exchange rate policy historical context over this period. Thus, part of the paper is dedicated to an historical account of the political economy of the exchange rate policy in Brazil from 1964 to 1997. The driving force affecting exchange rate policy was the tradeoff between the positive effect of a depreciated exchange rate on the balance of payments and its negative effect on inflation. The exchange rate policy resulting from this tradeoff depended on the political environment. An analytical framework is sketched to interpret the real exchange rate policy history, and then it is extended to encompass short-run election cycles. The second methodology is statistical. A Markov Switching Model is used to characterize statistically the exchange rate regimes, defined as valued or devalued real exchange rates, and the influence of political economy variables on regime changes. The results support the interpretation pursued in the analytical part. We found statistical evidence that the probability of an appreciated exchange rate is higher under democracy than under dictatorship. Furthermore, according to our statistical results there is also an election cycle: the probability of having an appreciated exchange rate is higher in the months preceding elections while the probability of having a depreciated exchange rate is higher in the months succeeding elections.
|Date of creation:||May 1999|
|Date of revision:|
|Contact details of provider:|| Postal: 1300 New York Avenue, NW, Washington, DC 20577|
Web page: http://www.iadb.org/res
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cristina T. Terra, 1998.
"Openness and Inflation: A New Assessment,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 641-648.
- Kaminsky, Graciela, 1993. "Is There a Peso Problem? Evidence from the Dollar/Pound Exchange Rate, 1976-1987," American Economic Review, American Economic Association, vol. 83(3), pages 450-72, June.
- Ernesto H. Stein & Jorge M. Streb, 1999.
"Elections and the Timing of Devaluations,"
CEMA Working Papers: Serie Documentos de Trabajo.
140, Universidad del CEMA.
- Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," Research Department Publications 4164, Inter-American Development Bank, Research Department.
- Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," IDB Publications (Working Papers) 6452, Inter-American Development Bank.
- Kenneth Rogoff & Anne Sibert, 1988.
"Elections and Macroeconomic Policy Cycles,"
Review of Economic Studies,
Oxford University Press, vol. 55(1), pages 1-16.
- Bollen, Nicolas P. B. & Gray, Stephen F. & Whaley, Robert E., 2000. "Regime switching in foreign exchange rates: Evidence from currency option prices," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 239-276.
- Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
- Kenneth Rogoff, 1987.
"Equilibrium Political Budget Cycles,"
NBER Working Papers
2428, National Bureau of Economic Research, Inc.
- Ernesto H. Stein & Jeffry Frieden, 2000. "The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview," Research Department Publications 3118, Inter-American Development Bank, Research Department.
- Ilan Goldfajn & Rodrigo O. Valdés, 1999.
"The Aftermath of Appreciations,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 114(1), pages 229-262.
- Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
- Michael Bruno, 1989. "Israel's Crisis and Economic Reform: A Historical Perspective," NBER Working Papers 3075, National Bureau of Economic Research, Inc.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:3065. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Monica Bazan)
If references are entirely missing, you can add them using this form.