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Explaining the Appreciation of the Brazilian real


  • Annabelle Mourougane



This paper seeks to identify factors explaining the appreciation of the Brazilian real observed since 2003, which was temporarily interrupted only during episodes of financial turbulence. Net foreign assets and the productivity differential relative to Brazil’s main trade partners are found to be significant determinants of the real effective exchange rate in the long run. In the short term, exchange-rate developments are mostly explained by movements in net foreign assets. The production of oil is also found to explain developments in the real effective exchange rate in the long run. These results are robust to a wide range of tests. There is evidence of an over-valuation of the real in 2010, but the extent of the misalignment is hard to gauge. FEER estimations point to an overvaluation between 3-10% in 2010. Dynamic simulations of behavioural exchange-rate equations generally suggest an overvaluation of between 10-20%. However, these estimations remain subject to large uncertainties. Comment expliquer l'appréciation du real Brésilien Ce papier cherche à identifier les facteurs expliquant l’appréciation du real Brésilien observé depuis 2003, qui a été temporairement interrompu uniquement durant des épisodes de turbulences financières. Les avoirs extérieurs nets et le différentiel de productivité relatifs aux principaux partenaires commerciaux du Brésil apparaissent comme des déterminants importants du taux de change effectif réel à long terme. À court terme, les évolutions des taux de change sont principalement expliquées par le mouvement des avoirs extérieurs nets. La production de pétrole explique également l'évolution du taux de change effectif réel à long terme. Ces résultats sont robustes à un large éventail de tests. Si la surévaluation du real en 2010 est évidente, l'ampleur de l'écart à l’équilibre reste difficile à mesurer. Les estimations FEER font état d'une surévaluation de 3 à 10% en 2010. Les simulations dynamiques des équations de comportement du taux de change suggèrent généralement une surévaluation de 10 à 20%. Ces estimations restent cependant soumises à de grandes incertitudes.

Suggested Citation

  • Annabelle Mourougane, 2011. "Explaining the Appreciation of the Brazilian real," OECD Economics Department Working Papers 901, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:901-en

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    References listed on IDEAS

    1. Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 11/36, International Monetary Fund.
    2. Olivier Jeanne & Anton Korinek, 2010. "Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach," American Economic Review, American Economic Association, vol. 100(2), pages 403-407, May.
    3. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    4. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 204-225, June.
    5. Christian Daude & Ángel Melguizo & Alejandro Neut, 2010. "Fiscal Policy in Latin America: Countercyclical and Sustainable at Last?," OECD Development Centre Working Papers 291, OECD Publishing.
    6. Jeffrey Frankel, 2013. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Felipe Céspedes & Jordi Galí (ed.), Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 9, pages 323-391 Central Bank of Chile.
    7. Nicolas Magud & Carmen Reinhart & Kenneth Rogoff, 2005. "Capital Controls: Myth and Reality A Portfolio Balance Approach to Capital Controls," University of Oregon Economics Department Working Papers 2006-10, University of Oregon Economics Department.
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    9. Francesco Caselli & Guy Michaels, 2013. "Do Oil Windfalls Improve Living Standards? Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 208-238, January.
    10. Annabelle Mourougane, 2011. "Explaining the Appreciation of the Brazilian real," OECD Economics Department Working Papers 901, OECD Publishing.
    11. Paulo A Medas & Daria V Zakharova, 2009. "A Primeron Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 09/56, International Monetary Fund.
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    Cited by:

    1. Annabelle Mourougane, 2011. "Refining Macroeconomic Policies to Sustain Growth in Brazil," OECD Economics Department Working Papers 899, OECD Publishing.

    More about this item


    BEER; BEER; Brazil; Brésil; currency; equilibrium exchange rate; FEER; FEER; Monnaie; taux de change d’équilibre;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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