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Explaining the Appreciation of the Brazilian real

Listed author(s):
  • 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.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 901.

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Date of creation: 21 Oct 2011
Handle: RePEc:oec:ecoaaa:901-en
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