Trade Elasticities and Market Expectations in Brazil

ByClaudio A Paiva

July 1, 2003

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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.

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

Keywords: Capacity utilization, cointegration models, elasticities, exchange rate, Exchange rates, export elasticity, export volume, Exports, import elasticity, import equation, import model, import volume, Imports, oil imports, Real effective exchange rates, Trade, trade elasticity pessimism, WP

Pages:
23
Volume:
2003
DOI:
https://doi.org/10.5089/9781451856149.001
Issue:
140
Series:
Working Paper No. 2003/140
Stock No:
WPIEA1402003
ISBN:
9781451856149
ISSN:
1018-5941

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