Fundamentals versus external shocks: Brazil's growing exposure to currency crises

M. L F Silva, Joaquim Pinto De Andrade, Thomas S. Torrance

    Research output: Contribution to journalArticle

    Abstract

    While financial globalization does not lack theoretical economic merit, the more far-reaching practical consequences of this phenomenon are often not fully appreciated from the vantage point of North America or the European Union. In particular, globalization can make it more difficult for emerging economies to achieve macroeconomic stabilization. This is especially true if the countries in question have chosen the vehicle of pegged exchange rates as an important element of domestic anti-inflation policy. The chief macroeconomic difficulties for emerging economies in a world of volatile capital flows can include a loss of monetary control, a real appreciation of the domestic currency, and a worsening of economic fundamentals leading to damaging currency crises. This paper concentrates on the recent experience of Brazil as illustrative of the abject plight faced by many developing countries attempting to secure economic stabilization against the background of the present globalized international economy. (JEL G15, 010, 050).

    Original languageEnglish
    Pages (from-to)192-209
    Number of pages18
    JournalInternational Advances in Economic Research
    Volume6
    Issue number2
    Publication statusPublished - May 2000

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