Conventions and the exchange rate: an application of the Harvey’s Model to Brazil

Marco Flávio Resende, Luíza Delgado Vieira (), Juan da Silva Barcelos de Campos () and Rafael Saulo Marques Ribeiro ()

Brazilian Journal of Political Economy, 2025, vol. 45, issue 4, 795-816

Abstract: This article offers two contributions to the literature on the subject of exchangerate determination. In the theoretical field, we elaborate the channel through which structural factors, of a lasting nature, influence the formation of the exchange rate based on their effectson the short-term determinants of this rate, within the scope of the Harvey’s model (2009). In the empirical field, we estimate an exchange rate equation for Brazil, for the period 1996-2022, aiming to investigate the adherence of the Harvey’s model (2009) to the Brazilian case.The Autoregressive Distributed Lag Model (ARDL) with the Error Correction Term (TCE) wasadopted as an estimation method using quarterly data. The results found suggest the relevanceof conventions, expectations, and financial flows, as well as the short-term and speculative biasof foreign exchange market agents, in determining the exchange rate. JEL Classification: E12; F31; F32.

Keywords: Exchange rate; conventions; Harvey’s model (search for similar items in EconPapers)
Date: 2025
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