The value of the exchange rate and the Dutch disease

Vol. 33 No. 3 (2013)

Jul-Sep / 2013
Published July 1, 2013
PDF-English
PDF-English

How to Cite

Bresser-Pereira, Luiz Carlos. 2013. “The Value of the Exchange Rate and the Dutch Disease”. Brazilian Journal of Political Economy 33 (3):371-87. https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/318.

The value of the exchange rate and the Dutch disease

Luiz Carlos Bresser-Pereira
Emeritus professor of Getulio Vargas Foundation.
Brazilian Journal of Political Economy, Vol. 33 No. 3 (2013), Jul-Sep / 2013, Pages 371-387

Abstract

This paper revisits the original (2008) paper on the Dutch disease, which defined it by the existence of two exchange rate equilibriums (the current and the industrial exchange rate equilibriums). Its novelty is in claiming that, as we have a value and a market price for each good or service, we also have a value and a market price for foreign money. The value is the cost plus reasonable profit corresponding to the exchange rate that makes competitive the country’s competent business enterprises; the nominal exchange rates floats around the value according to the demand and supply of foreign money. This basic distinction of the exchange rate in terms of value and in terms of price allows us to understand that the two equilibriums are defined in value terms, and opens room for a clear distinction of the policies that affect the value from the ones that affect the market price of the exchange rate.

JEL Classification: D46; F31.


Keywords: Dutch disease exchange rate value market price