Monetary policy, default risk and the exchange rate

Abstract

In a country with high probability of default, higher interest rates may render the currency less attractive if sovereign default is costly. This paper develops that intuition in a simple model and estimates the effect of changes in interest rates on the exchange rate in Brazil using data from the dates surrounding the monetary policy committee meetings and the methodology of identification through heteroskedasticity. Indeed, we find that unexpected increases in interest rates tend to lead the Brazilian currency to depreciate. Em um país onde é alta

Long‐run Determinants of the Brazilian Real: A Closer Look at Commodities

“…In other words, it is hard to rationalize the recent evolution of the effective or even the bilateral rate movements of the Brazilian Real with the (widely popular) interest rate arbitrage rationale. It has been shown elsewhere that the reaction of the exchange rate (or absence of it) following monetary policy events in Latin American economies corroborates such conclusion (Gonçalves and Guimarães, ; Kohlscheen, ). The inclusion of a foreign interest rate on its own (to capture the ‘push factor’ for capital flows) also did not change this assessment.…”

Análise empírica da formação de expectativas de inflação no Brasil: uma aplicação de redes neurais artificiais a dados em painel

“…Nosso argumento para o efeito ambíguo da taxa de juros sobre as expectativas, contudo, é de que esse efeito pode estar associado à infl uência também ambígua da taxa de juros sobre o câmbio, a qual é derivada do efeito da taxa de juros sobre a dívida. Gonçalves e Guimarães (2006), por exemplo, apresentam evidências empíricas de que o efeito usual que liga aumentos da taxa de juros a apreciação cambial foi superado pelo efeito da dominância fi scal (o qual liga aumentos da taxa de juros a depreciação cambial) no período de 2000 a 2005. A paridade descoberta da taxa de juros implica que um aumento nos juros torna os títulos domésticos mais atrativos, o que aumenta os infl uxos de capital, aumentando a oferta de dólares no mercado de câmbio e, assim, apreciando a taxa de câmbio (dólar fi ca mais barato), o que leva à diminuição das expectativas de infl ação.…”

Long-Run Determinants of the Brazilian Real: A Closer Look at Commodities

“…In other words, it is hard to rationalize the recent evolution of the effective or even the bilateral rate movements of the Brazilian Real with the (widely popular) interest rate arbitrage rationale. It has been shown elsewhere that the reaction of the exchange rate (or absence of it) following monetary policy events in Latin American economies corroborates such conclusion (Gonçalves and Guimarães, 2011;Kohlscheen, 2011). The inclusion of a foreign interest rate on its own (to capture the 'push factor' for capital flows) also did not change this assessment.…”