Exchange rate regulations, the behavior of exchange rates, and macroeconomic stability in Brazil

Vol. 31 No. 4 (2011)

Oct-Dec / 2011
Published October 1, 2011
PDF-English
PDF-English

How to Cite

Souza, Francisco Eduardo Pires de, and Fernando J. Cardim de Carvalho. 2011. “Exchange Rate Regulations, the Behavior of Exchange Rates, and Macroeconomic Stability in Brazil”. Brazilian Journal of Political Economy 31 (4):563-78. https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/421.

Exchange rate regulations, the behavior of exchange rates, and macroeconomic stability in Brazil

Francisco Eduardo Pires de Souza
Institute of Economics, Federal University of Rio de Janeiro.
Fernando J. Cardim de Carvalho
Institute of Economics, Federal University of Rio de Janeiro.
Brazilian Journal of Political Economy, Vol. 31 No. 4 (2011), Oct-Dec / 2011, Pages 563-578

Abstract

In the last two decades an entirely new set of rules governing the foreign exchange transactions was established in Brazil, substituting for the framework inherited from the 1930’s. Foreign exchange controls were dismantled and a floating exchange rate regime replaced different forms of peg. In this paper we argue that although successful by comparison to previous experiences, the current arrangement has important flaws that should be addressed. We discuss how it first led to high volatility and extremely high interest rates, which, when overcome, gave way to a long lasting appreciation of the real exchange rate with adverse consequences to industry.

JEL Classification: E6; F3; F4.


Keywords: Brazilian exchange rate regime capital account liberalization foreign exchange regulation