Trade Elasticities and Market Expectations in Brazil

Author/Editor:

Claudio A Paiva

Publication Date:

July 1, 2003

Electronic Access:

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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 provides econometric estimates of trade elasticities for Brazil obtained through cointegration and vector auto regression models and controlling for the effects of exchange rate volatility, capacity utilization, and changes in import tariffs. The results suggest that (i) recent market expectations may have been unduly pessimistic regarding the responsiveness of Brazil's trade flows to the real exchange rate, but (ii) the GDP growth rates targeted by the new government may put downward pressure on the exchange rate and thus render the achievement of official inflation targets considerably more difficult if structural reforms are not implemented.

Series:

Working Paper No. 2003/140

Subject:

Capacity utilization Exchange rates Exports Foreign exchange Imports International trade Production Real effective exchange rates

English

Publication Date:

July 1, 2003

ISBN/ISSN:

9781451856149/1018-5941

Stock No:

WPIEA1402003

Pages:

23

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