Economics at your fingertips  

The determination of the exchange rate: a new-developmental approach

Luiz Carlos Bresser-Pereira (), Carmem Feijó and Eliane Araujo

No 558, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: This paper discusses the long-term determination of the exchange rate, given that it may remain depreciated or overvalued for some time. It defines the equilibrium exchange rate and the competitive exchange rate; the latter makes investment projects competitive internationally. Instead of starting from the PPP theory, it starts from the concept of the value of foreign money or the exchange rate around which the price, the exchange rate, revolves according to the supply and demand of foreign money. This, in turn, is influenced by three factors: the terms of trade, the current-account balance as a determinant of the net capital flows or inflows, and the interest rate differential. This paper criticizes the “fundamental equilibrium” concept and develops two econometric tests. The first checks whether the four determinant variables used in the model are relevant. The second verifies whether this model is a good predictor of the exchange rate throughout time.

Date: 2022-08-31
New Economics Papers: this item is included in nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... resser%20Pereira.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil) Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().

Page updated 2023-01-26
Handle: RePEc:fgv:eesptd:558