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Structural changes in exchange rate regimes in Brazil

By Reginaldo Pinto Nogueira, Claudio Djissey Shikida and Ari Francisco de Araujo

Abstract

Following a dramatic breakdown of a managed floating regime, Brazil adopted a framework for policy consisting of inflation targeting and floating exchange rates. The country's commitment to this arrangement, however, is often put to dispute. In this paper we revisit the issue of whether Brazil has truly accepted to let its currency float, taking use of cross-currency linear regression models complemented by inferential techniques for evaluating the stability of exchange rate regimes. The results found suggest that Brazil does seem to have shifted towards greater exchange rate flexibility after the abandonment of its dollar-peg. However, after the adoption of inflation targeting the degree of exchange rate flexibility seems to have reduced a little.Structural changes; exchange rate regimes; emerging markets.

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