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

32 Pages Posted: 15 Feb 2006

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department

Carlos Medeiros

affiliation not provided to SSRN

Date Written: October 1997

Abstract

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.

Keywords: Real exchange rate, capital inflows, generalized VAR analysis, Brazil

JEL Classification: E44, F32, F34

Suggested Citation

Agenor, Pierre-Richard and Hoffmaister, Alexander W. and Medeiros, Carlos, Cyclical Fluctuations in Brazil's Real Exchange Rate: The Role of Domestic and External Factors (October 1997). IMF Working Paper, Vol. , pp. 1-32, 1997. Available at SSRN: https://ssrn.com/abstract=882679

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Carlos Medeiros

affiliation not provided to SSRN

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