Endogenous foreign capital flow in a CGE model for Brazilthe role of international reserves

Resumo

In this paper we model foreign capital flow to Brazil as stemming from an investment decision that whose risk depends on the expected rate of loss of foreign reserves. This motivates the estimation of an empirical relationship between these two variables that is valid for “normal” periods (when there is no foreign exchange crisis) which is used to calculate the capital flow associated with a given expected rate of foreign reserves loss. This empirical relationship is then introduced in a static General Equilibrium Model for Brazil which has exogenous foreign capital flow and follows a relatively standard specification, to produce a version of it with endogenous capital flow. After employing the inverse of the estimated relationship to calculate the difference between the expected and the realized values of the reserve loss in 1998, and using it to adjust the base year data, we recalibrate the model and compare the response of the two versions of the model to a simulation of the implementation of two free trade agreements: with the Americas (ALCA) and with the European Union. The main conclusion is that the inclusion of endogenous foreign capital flow in the model significantly amplifies, and in some cases changes, the real effects of these free trade agreements.

Ficha do documento

Tipo

Estudo

Ano

2004

Instituição

Instituto de Pesquisa Econômica Aplicada (Ipea)

Fonte

Repositório do Ipea

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.ipea.gov.br:11058/1902

Licença

Licença Comum

Abrangência

Brasil

Temas

Modelagem Econômica

Palavras-chave

Fluxo de capital externoReservas internacionaisModelo estático de equilíbrio geral aplicadoEndogeneização