Cyclical Fluctuations in Brazils Real Exchange Rate: The Role of Domestic and External Factors Carlos I. Medeiros

ISBN: 9786613864185

Published: October 1st 1997

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33 pages


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Cyclical Fluctuations in Brazils Real Exchange Rate: The Role of Domestic and External Factors  by  Carlos I. Medeiros

Cyclical Fluctuations in Brazils Real Exchange Rate: The Role of Domestic and External Factors by Carlos I. Medeiros
October 1st 1997 | ebook | PDF, EPUB, FB2, DjVu, AUDIO, mp3, RTF | 33 pages | ISBN: 9786613864185 | 9.61 Mb

The potentially adverse effect of large capital inflows on domestic inflation and the real exchange rate (as well as, ultimately, the current account) has been one of the main concern of policymakers in developing countries and transition economiesMoreThe potentially adverse effect of large capital inflows on domestic inflation and the real exchange rate (as well as, ultimately, the current account) has been one of the main concern of policymakers in developing countries and transition economies in recent years.

As argued in a number of recent studies, the composition of capital flows, the degree of price stickiness and the degree of nominal exchange rate flexibility have been important factors in determining the effect of capital inflows on domestic macroeconomic outcomes. In countries where capital inflows have taken the form of portfolio investment (as opposed to foreign direct investment), they have often been associated with an increase in consumption rather than investment.

In turn, the increase in consumption has often taken the form of a large increase in expenditure on nontradable goods, thereby leading to a real appreciation. In countries where a fixed (or predetermined) exchange rate has been used as a nominal anchor to reduce inflation (as was the case in Argentina, for instance), inertial factors have led to upward pressure on prices of nontraded goods and have led to a real appreciation.2



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