The magic of Mr. Gustavo Franco, revisited

Ruben Dario Almonacid ()

Brazilian Journal of Political Economy, 1998, vol. 18, issue 2, 304-309

Abstract: After the introduction of the Real Plan in 1994 Brazil has been following adynamic path which implied a) a strong appreciation of the real exchange rate, generatinga significant deterioration of the Trade and Current Accounts and b) a heavy use of foreignloans requiring the maintenance of very high interest rates to attract new capital, in orderto finance these deficits. Given the numbers involved in the Brazilian experiment, this pathis not sustainable in the long run, since the foreign debt grows explosively, implying that,sooner or later, it will need to be corrected. This paper presents some simulations showingsome restrictions that an equilibrium path must satisfy. JEL Classification: E52; F32.

Keywords: Stabilization; balance of payments crisis; currency crisis (search for similar items in EconPapers)
Date: 1998
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