The long term real exchange rate in Brazil

Abstract

The theoretical and empirical international trade literature suggests that there is long-term valuation/devaluation of the real exchange rate in the developed/ /undeveloped economies. We argue that the real exchange rate is affected by: i) intercountry differentials of the services sector development; and, ii) non-neutral characteristic of the international financial system, demonstrated in the Post-Keynesian approach. Based on items (i) and (ii) an equation for the Brazilian real exchange rate was estimated in this paper (1971-2002). The econometric procedures were based on the Engle-Granger and Johansen methods. The results do not reject the hypothesis put forward in this paper.