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Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications

  • Thierry Buchs

This paper examines the determinants of the real effective exchange rate (REER) in Brazil, from 1994 to 2003. Building on a standard theoretical model and based on the Johansen cointegration estimation, the main finding is that much of the long-run behavior of the REER can be explained by relative productivity differentials, real commodity prices, government expenditures on tradables and non-tradables, trade openness and real interest differentials. On the basis of these fundamentals, the level of misalignment of the Real was found to be surprisingly modest during the Real Plan (1994-1998). As of end 2003, the Real was found to be slightly appreciated with respect to the estimated equilibrium level, although the extent of the misalignment appears to be small as well. The paper also discusses the implications of these findings with regard to trade competitiveness.

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File URL: http://128.118.178.162/eps/it/papers/0502/0502013.pdf
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Paper provided by EconWPA in its series International Trade with number 0502013.

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Length: 34 pages
Date of creation: 23 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpit:0502013
Note: Type of Document - pdf; pages: 34
Contact details of provider: Web page: http://128.118.178.162

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  1. Claudio Paiva, 2003. "Trade Elasticities and Market Expectations in Brazil," IMF Working Papers 03/140, International Monetary Fund.
  2. Taimur Baig & Ilan Goldfajn, 2000. "The Russian default and the contagion to Brazil," Textos para discussão 420, Department of Economics PUC-Rio (Brazil).
  3. Alberola, Enrique & Lopez, Humberto & Serven, Luis, 2004. "Tango with the Gringo: the hard peg and real misalignment in Argentina," Policy Research Working Paper Series 3322, The World Bank.
  4. Ronald Macdonald & Luca Antonio Ricci, 2004. "Estimation Of The Equilibrium Real Exchange Rate For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 282-304, 06.
  5. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates; Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
  6. Ratna Sahay & Luis Felipe Céspedes & Paul Cashin, 2002. "Keynes, Cocoa, and Copper; In Search of Commodity Currencies," IMF Working Papers 02/223, International Monetary Fund.
  7. Michael R. Pakko & Patricia S. Pollard, 2003. "Burgernomics: a big MacT guide to purchasing power parity," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 9-28.
  8. Alexander 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.
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