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

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

Abstract

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.

Suggested Citation

  • Willy W. Hoffmaister & Carlos I. Medeiros & Pierre-Richard Agénor, 1997. "Cyclical Fluctuations in Brazil's Real Exchange Rate; The Role of Domestic and External Factors," IMF Working Papers 97/128, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:97/128
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    Cited by:

    1. MacDonald, Ronald & Marsh, Ian W., 2004. "Currency spillovers and tri-polarity: a simultaneous model of the US dollar, German mark and Japanese yen," Journal of International Money and Finance, Elsevier, pages 99-111.
    2. Gurnain Pasricha & Matteo Falagiarda & Martin Bijsterbosch & Joshua Aizenman, 2015. "Domestic and Multilateral Effects of Capital Controls in Emerging Markets," NBER Working Papers 20822, National Bureau of Economic Research, Inc.
    3. Thierry Buchs, 2005. "Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications," International Trade 0502013, EconWPA.
    4. Mkenda, Beatrice Kalinda, 2001. "Long-run and Short-run Determinants of the Real Exchange Rate in Zambia," Working Papers in Economics 40, University of Gothenburg, Department of Economics.
    5. Valdes, Constanza & Hjort, Kim & Seeley, Ralph, 2016. "Brazil’s Changing Macroeconomic Conditions: Impacts on Agriculture," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236207, Agricultural and Applied Economics Association.

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