TERMS-OF-TRADE FLUCTUATIONS AND THEIR IMPLICATIONS FOR EXCHANGE- RATE COORDINATION IN MERCOSUR

This paper presents the correlation between the annual fluctuations of the terms of trade of Brazil, Argentina, Uruguay and Paraguay. The period under analysis is 1980-2001 and the main findings are that the four countries have a high to moderate synchronization of their export prices, a moderate to low synchronization of their import prices, and a low synchronization of their terms of trade. The small positive correlation between the growth rates of the terms of trade of Brazil and Argentina (0.24) support exchange rate coordination between the two countries, provided that their bilateral real exchange rate is allowed to fluctuate temporarily to accommodate possible differences between the intensity of shocks across them. For instance, given an adverse shock to Brazil, both the Brazilian and Argentine real exchange rates against the rest of the world (domestic good per unit of foreign good) should increase to avoid a reduction, or smooth the variation, of their trade balances, but the Argentine currency should appreciate against the Brazilian currency in real terms because Argentina tends to be less affected by the shock. The observed correlations indicate that, through a joint and flexible managed float of their currencies, Argentina and Brazil may be able to share the benefits and costs of terms-of-trade shocks without imposing major macroeconomic disruptions on each other. In such an arrangement and also based on the observed correlations, Uruguay may either follow Argentina, when the terms-of-trade shock is more intense to Brazil, or do nothing, when the shock is more intense to Argentina. In contrast, Paraguay should follow Brazil, when the terms- of-trade shock is more intense to Argentina, or do nothing, when the shock is more intense to Brazil. Because of the low correlation between the terms-of-trade fluctuations of Brazil and Argentina, the best form of exchange-rate coordination for the near future seems to be a Mercosur version of the European Monetary System of 1979-98, that is, a wide interval of fluctuation for the regional currencies around a common and competitive real exchange rate against the rest of the world.Mercosur, Trade, Exchange-Rate Coordination

Growth, exchange rates and trade in Brazil: a structuralist post-Keynesian approach

This paper presents a structuralist post-Keynesian analysis of trade adjustment in Brazil. Based on the concept of the balance-of-payments (BoP) constraint on growth, the paper investigates the relationship between income growth and real-exchange-rate devaluation necessary to adjust trade to a foreign-exchange constraint. The main result is that, with price-inelastic and income-elastic imports and based on its trade structure in 2002, Brazil may have to compensate an additional 1% of income growth with approximately 7% of real-exchange-rate devaluation in order to keep its trade balance stable in relation to GDP in the near future. Moreover, the trade parameters of Brazil seem to be unfavorable to growth with stable trade, that is, even moderate rates of GDP expansion lead to a substantial increase of imports and, therefore, require an also substantial devaluation of the real exchange rate to avoid a deterioration of the trade balance.structuralist macroeconomics, trade, growth, exchange rate, Brazil

TRENDS AND FLUCTUATIONS IN BRAZILIAN AND ARGENTINE TRADE FLOWS

This paper analyzes the trends and fluctuations of the price and real indexes of Brazilian and Argentine exports and imports in 1980-2002. The analysis uses quarterly data and obtains the trend and fluctuations by applying either the Hodrick-Prescott or the band-pass filter (with periodicity between 1.5 and 8 years) to the original series. The main statistical findings are that: (i) even though the fluctuations of the export and import prices of the two countries are highly correlated, their terms of trade are not because the export price of one country is also highly correlated with the import price of the other country; (ii) in both countries the fluctuations of real imports basically follow the fluctuations of real GDP; and (iii) fluctuations of Brazilian GDP and real imports are highly correlated and seem to lead fluctuations of Argentine exports. To obtain these results the paper analyzes the lead, lag and contemporaneous correlation between the series in question and applies the Granger causality test to investigate whether or not one variable helps to explain the other statistically. The statistical results for the fluctuations are robust for both filters. The trends are also basically the same independently of the filter used and, overall, they seem to converge in the late 1990s. The main policy implication is that exchange-rate coordination may be useful to compensate or smooth the adjustment of the two countries to terms-of-trade shocks, provided that the managed float is flexible enough to allow the bilateral real exchange rate to change according to which country is most affected by the shock. On the real side, synchronization of real GDP would lead to synchronization of real imports, whereas exchange-rate coordination may eliminate the swings of the bilateral real exchange rate between Brazil and Argentina, which is one of the sources of their desynchronized export fluctuations.Brazil, Argentina, Trade

A SIMPLE MODEL OF DEMAND-LED GROWTH AND INCOME DISTRIBUTION

This paper presents a one-sector demand-led model where capital and non-capital expenditures determine income growth and distribution. The basic idea is to build a simple dynamical accounting model for the growth rate of the capital stock, the ratio of non-capital expenditures to the capital stock, and the labor share of income. By inserting some stylized behavioral functions in the identities, the paper analyzes the implications of alternative theoretical closures of income determination (effective demand) and distribution (social conflict). On the demand side, two behavioral functions define the growth rates of capital and non-capital expenditures as functions of capacity utilization (measured by the output-capital ratio) and income distribution (measured by the labor share of income). On the distribution side, another two behavioral functions describe the growth rates of the real wage and labor productivity also as functions of capacity utilization and income distribution. The growth rates of total factor productivity and employment follow residually from the accounting identities and, in this way, the demand-led model can encompass supply-driven models as a special case.

Estimating potential output: a survey of the alternative methods and their applications to Brazil

This paper presents the main issues involved in estimating potential output. The objective is to describe the alternative methods and analyze their application and implications for growth forecasts and macroeconomic policy in Brazil. The text emphasizes the determinants of potential output under fixed and flexible coefficients of production. Given the wide use of aggregate measures of total factor productivity in growth accounting, and the sensitivity of such a variable to economic assumptions and errors of measurement, the text also presents the main applied critiques and alternatives to aggregate growth-accounting exercises. The main conclusions are: (1) the annual potential growth rate of Brazil’s GDP varies substantially depending on the method and hypotheses adopted and, what is most important, potential GDP is not separable from effective GDP in the long-run; (2) growth-accounting and time-series studies of Brazil result in low potential-output growth rates because they extrapolate the slow growth of 1981-2003 to the future; (3) capital seems to be the main constraint on growth in Brazil and, therefore, a demand-led increase in investment can raise both its effective and potential output levels; (4) however, because of the slow adjustment of the capital stock, an investment boom can also hit a supply constraint before the stock of capital has time to adjust to the growth rate of investment; and (5) aggregate measures of potential output do not carry much information about the economy and, therefore, they should be complemented by sectoral estimates of capacity utilization to identify the bottlenecks in inter-industry flows and the corresponding demand pressures on inflation.Potential Output, Brazil

The Rise and Halt of Economic Development in Brazil, 1945-2004: Industrial Catching-up, Institutional Innovation and Financial Fragility

development, catch-up, institutions

INSTITUTIONAL CHANGE AND ECONOMIC TRANSFORMATION IN BRAZIL, 1945-2004 - FROM INDUSTRIAL CATCHING-UP TO FINANCIAL FRAGILITY

This paper tries to explain the dynamics of Brazilian industrial catch-up in the last 60 years by discussing its background institutional conditions as well as its main macroeconomic features. After a brief introduction, the second section describes how after the institutional innovations introduced during the Vargas's and Kubitschek's administrations, a Brazilian version of the Developmental State was created, releasing the growth potential of the economy during the 1950s. The third section analyses the inflationary crisis and institutional inertia of the mid-1960s, and its solution through the introduction of a new of wave of institutional innovations and conflict management devices, which lead to the Brazilian growth miracle, until the debt crisis of early 1980s signaled its end. The fourth section analyses why the financial crisis, coupled with ineffective institutional changes and unsuccessful macroeconomic stabilization plans lead growth to a halt. It also includes an analysis of the pro-market reforms from the early 1990s onwards. The fifth section concludes the paper offering a brief sketch on how the analytical narrative fits the conceptual framework within which it was carried.

Skin color and severe maternal outcomes: evidence from the brazilian network for surveillance of severe maternal morbidity

Taking into account the probable role that race/skin color may have for determining outcomes in maternal health, the objective of this study was to assess whether maternal race/skin color is a predictor of severe maternal morbidity. This is a secondary analysis of the Brazilian Network for Surveillance of Severe Maternal Morbidity, a national multicenter cross-sectional study of 27 Brazilian referral maternity hospitals. A prospective surveillance was performed to identify cases of maternal death (MD), maternal near miss (MNM) events, and potentially life-threatening conditions (PLTC), according to standard WHO definition and criteria. Among 9,555 women with severe maternal morbidity, data on race/skin color was available for 7,139 women, who were further divided into two groups: 4,108 nonwhite women (2,253 black and 1,855 from other races/skin color) and 3,031 white women. Indicators of severe maternal morbidity according to WHO definition are shown by skin color group. Adjusted Prevalence Ratios (PRadj - 95%CI) for Severe Maternal Outcome (SMO=MNM+MD) were estimated according to sociodemographic/obstetric characteristics, pregnancy outcomes, and perinatal results considering race. Results. Among 7,139 women with severe maternal morbidity evaluated, 90.5% were classified as PLTC, 8.5% as MNM, and 1.6% as MD. There was a significantly higher prevalence of MNM and MD among white women. MNMR (maternal near miss ratio) was 9.37 per thousand live births (LB). SMOR (severe maternal outcome ratio) was 11.08 per 1000 LB, and MMR (maternal mortality ratio) was 170.4 per 100,000 LB. Maternal mortality to maternal near miss ratio was 1 to 5.2, irrespective of maternal skin color. Hypertension, the main cause of maternal complications, affected mostly nonwhite women. Hemorrhage, the second more common cause of maternal complication, predominated among white women. Nonwhite skin color was associated with a reduced risk of SMO in multivariate analysis. Nonwhite skin color was associated with a lower risk for severe maternal outcomes. This result could be due to confounding factors linked to a high rate of Brazilian miscegenation.2019CNPQ - Conselho Nacional de Desenvolvimento Científico e Tecnológico402702/2008-