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Cyclical Fluctuations in Brazil's Real Exchange Rate: The Role of Domestic and External Factors

  • Alexander W. Hoffmaister
  • Carlos I. Medeiros
  • Pierre-Richard Agénor

This paper examines the effects of capital inflows and domestic factors on Brazil’s real exchange rate. It describes the analytical framework, and then estimates a near-VAR model linking capital flows, interest rate differentials, government spending, money-base velocity, and the temporary component of the real exchange rate (TCRER). Generalized variance decompositions indicate that world interest rate shocks largely explain medium-term fluctuations in capital flows and the TCRER. Generalized impulse response functions show that a reduction in the world interest rate (and, to a lesser extent, an increase in government spending) have significant effects on the TCRER and capital flows.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/128.

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Length: 32
Date of creation: 01 Oct 1997
Date of revision:
Handle: RePEc:imf:imfwpa:97/128
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