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

Author/Editor:

Willy A Hoffmaister ; Carlos I. Medeiros ; Pierre-Richard Agénor

Publication Date:

October 1, 1997

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1997/128

Subject:

English

Publication Date:

October 1, 1997

ISBN/ISSN:

9781451935486/1018-5941

Stock No:

WPIEA1281997

Pages:

32

Please address any questions about this title to publications@imf.org