On-Linearity between Exchange and Prices in Brazil and Implications for an Economic Development Strategy: Perspective

Abstract

Among the various monetary policy transmission channels, the exchange rate stands out as one of the most important, which has been widely documented in the Brazilian economic literature in recent decades? In fact, after the change to the floating exchange rate regime and the respective introduction of the Inflation Targeting Regime (RMI) in Brazil in mid-1999, the exchange rate showed considerable variability, reaching more than R $ 4.00, as in 2002 and 2015, for example, or even close to R$ 1.50, as occurred in the years 2007 and 2011. In response to domestic events with emphasis on changes in the basic interest rate in compliance inflation targets either due to external shocks, changing perceptions about the direction of the economy generally implied greater or lesser willingness for foreign capital to enter, especially in the short term, contributing to the volatility of this fundamental price of the Brazilian economy.