Cyclical Fluctuations in Brazil's Real Exchange Rate: The Role of Domestic and External Factors
October 1, 1997
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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.
Subject: Balance of payments, Capital flows, Capital inflows, Consumption, External debt, Foreign exchange, National accounts, Real exchange rates
Keywords: and Brazil, Capital flows, capital inflows, Consumption, consumption decision, equalization tax, exchange rate, generalized VAR analysis, interest rate differential, interest rate shock, market-clearing interest rate, Mexican peso, Real exchange rate, Real exchange rates, trade balance, world interest rate, WP
Pages:
32
Volume:
1997
DOI:
Issue:
128
Series:
Working Paper No. 1997/128
Stock No:
WPIEA1281997
ISBN:
9781451935486
ISSN:
1018-5941
