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      Financial Markets, External Shocks and Policy Responses: The Case of Brazil 2001 Translated title: Mercados financeiros, choques externos e respostas a políticas: o caso do Brasil 2001

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          ABSTRACT This paper evaluates the macroeconomic response of the Brazilian government in 2001 following the emergence of sharp negative events in both the external and internal sectors with particular focus on monetary and exchange rate policies. It points out that the kind of macroeconomic reaction depicted by the standard Mundell-Fleming model is of little practical importance in a small open economy engulfed in dollar denominated debts and experiencing a confidence crisis like Brazil’s. The Brazilian economy operates as if there were some sorts of ceilings for the exchange rate and for interest rates, in a clear departure from the assumptions embodied in the “pure” model. In this kind of environment another set of actions is required to fight a dangerous exchange rate overshooting and that is proven by the events of 2001. Whilst the actions taken by the monetary authorities proved successful at that moment the paper shows that they came with sizeable real and financial costs as collateral. Therefore, the paper argues in favour of another set of macroeconomic responses which should have been preferred if we were to avoid such costs.

          Translated abstract

          RESUMO Este artigo avalia a resposta macroeconômica do governo brasileiro em 2001, após o surgimento de fortes eventos negativos nos setores externo e interno, com foco particular nas políticas monetária e cambial. Ele aponta que o tipo de reação macroeconômica representada pelo modelo padrão de Mundell-Fleming é de pouca importância prática em uma pequena economia aberta, englobada em dívidas denominadas em dólar e passando por uma crise de confiança como a do Brasil. A economia brasileira opera como se houvesse algum tipo de teto para a taxa de câmbio e para as taxas de juros, em um claro afastamento das premissas incorporadas no modelo “puro”. Nesse tipo de ambiente, é necessário outro conjunto de ações para combater uma taxa de câmbio perigosa, o que é comprovado pelos eventos de 2001. Embora as ações tomadas pelas autoridades monetárias tenham se mostrado bem sucedidas naquele momento, o artigo mostra que elas vieram com um considerável custos financeiros. Portanto, o artigo argumenta a favor de outro conjunto de respostas macroeconômicas que deveria ter sido preferido para evitar tais custos.

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          Além da Desvalorização

           L Faria (2001)
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            The Transition from Fixed to Flexible Exchange Rates: the Case of Brazil

             L Faria (2000)

              Author and article information

              Brazilian Journal of Political Economy
              Brazil. J. Polit. Econ.
              Editora 34 (São Paulo, SP, Brazil )
              December 2003
              : 23
              : 4
              : 547-562
              S0101-31572003000400547 S0101-3157(03)02300400547

              This work is licensed under a Creative Commons Attribution 4.0 International License.

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              Figures: 0, Tables: 0, Equations: 0, References: 11, Pages: 16
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